The Biden administration announced a final rule that will remove unpaid medical bills from credit reports. This significant change will prevent medical debt from hindering access to mortgages, car loans, and small business loans. The Consumer Financial Protection Bureau (CFPB) estimates this rule will eliminate $49 billion in medical debt from the credit reports of over 15 million Americans.
Table Content:
Impact on Credit Scores and Lending
By removing medical debt from consideration, lenders will have a clearer picture of an individual’s financial health. The CFPB projects that this change will raise credit scores by an average of 20 points. This increase could lead to the approval of approximately 22,000 additional mortgages annually. Vice President Kamala Harris hailed the rule as “lifechanging” for millions of families, emphasizing that medical emergencies should not impede economic opportunity.
Government Efforts to Address Medical Debt
In addition to the new rule, state and local governments have leveraged funds from a 2021 pandemic-era aid package to eliminate over $1 billion in medical debt for more than 700,000 Americans. This combined effort underscores a broader commitment to addressing the burden of medical debt on individuals and families. The administration initially announced plans for this rule in the fall of 2023.
Medical Debt as a Predictor of Creditworthiness
The CFPB asserts that medical debt is not a reliable indicator of a person’s ability to repay loans. This conclusion aligns with actions taken by the three major credit reporting agencies—Experian, Equifax, and TransUnion—which previously removed medical collections debt under $500 from consumer credit reports. The new rule expands upon these efforts by tackling outstanding medical bills still appearing on credit reports. This comprehensive approach aims to provide a more accurate and equitable assessment of creditworthiness.
Conclusion: A Step Towards Financial Fairness
The removal of medical debt from credit reports marks a significant step towards financial fairness for millions of Americans. This rule acknowledges the unique nature of medical debt and its limited predictive value in assessing creditworthiness. By decoupling medical hardship from access to credit, the Biden administration aims to create a more inclusive financial system that promotes economic opportunity for all.
