$49B in medical debt to be erased from credit reports
Patients with medical debt will no longer see their credit scores drop, as new regulations will prohibit reporting agencies from including it on credit reports.
The Consumer Financial Protection Bureau (CFPB) has finalized the rule, which will remove roughly $49 billion in medical bills from credit reports, the agency said in a statement. Around 15 million Americans are expected to benefit from the change, which goes into effect 60 days after it's published in the Federal Register.
The CFPB said the change is aimed at reducing illegal and exploitative debt collection practices by closing a “loophole” where debt collectors use the credit reporting system to “coerce people to pay bills they don’t owe.”
Debt collectors have been able to pressure consumers because medical debt has lowered credit scores and diminished the perceived creditworthiness of an individual. The CFPB said the new rule will stop lenders from taking medical debt into consideration—in fact, without credit reporting, they may not even be aware of it at all.
The CFPB argues this is an improvement, as it said its researchers found medical debt to be a poor predictor of a person’s ability to pay back a loan or mortgage. Further, the agency said many consumers have medical debt on their credit reports that should have been covered by insurance in the first place.
It estimates 22,000 mortgages will be approved once the rule goes into effect, and many people could see their credit scores jump as much as 20 points.
Previous rules passed by the Biden administration protected consumers from medical debts under $500. However, the new rule from the CFPB does not include such limitations.
It's important to note the change will not affect debt collection calls and lawsuits. Consumers may very well still be liable for any medical debts that they have.
The full rule can be read here.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.