U.S. consumers will soon see relief from medical debt impacting their credit reports as a result of a new rule finalized by the Biden administration on Tuesday. As of March, approximately $49 billion in medical bills will no longer be reflected on the credit reports of around 15 million Americans. This significant change, previously proposed by administration officials during the summer, also includes a provision that lenders are now prohibited from factoring in medical information when making lending decisions.
Rohit Chopra, the Director of the Consumer Financial Protection Bureau (CFPB), emphasized the importance of this rule change by stating, “People who get sick shouldn’t have their financial future upended.” He further explained, “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
According to a 2024 poll conducted by the Kaiser Family Foundation (KFF), a nonprofit organization specializing in health policy research, approximately 1 in 12 adults in the U.S. currently carry medical debt. The CFPB’s analysis revealed that the presence of medical bills on individuals’ credit reports did not reliably predict their ability to repay loans, yet led to the denial of numerous mortgage applications.
The CFPB anticipates a positive impact from this rule change, estimating that it will result in the approval of an additional 22,000 mortgages annually. Furthermore, individuals with medical debt previously reflected on their credit reports could experience an average increase of 20 points in their credit scores.
In a related development, the three major U.S. credit bureaus had already announced in 2023 that previously settled medical debts, as well as any medical debts totaling less than $500, would no longer be included on credit reports. This move aligns with ongoing efforts by the Biden administration to implement protective measures prior to the transition of power to President-elect Donald Trump.
Beyond the realm of consumer finance, the White House disclosed on Monday its decision to prohibit new offshore oil and gas drilling across a significant portion of the U.S. coastline. Meanwhile, advocates in the financial sector are bracing for potential rollbacks of regulatory safeguards implemented by the CFPB over the past four years. The CFPB has been a target of criticism from certain GOP lawmakers and allies of former President Trump, including prominent figure Elon Musk.
As these policy changes unfold, the Biden administration continues to prioritize initiatives aimed at enhancing financial security and protecting consumers from predatory practices within the lending industry.
