The Biden administration takes a final swing at medical debt, banning it from credit reports in a move that could impact millions of Americans.
At a Glance
- New rule bans unpaid medical bills from appearing on consumer credit reports
- $49 billion in medical debt to be removed from credit reports of 15 million Americans
- Change expected to raise credit scores by an average of 20 points
- Rule faces opposition from Republican leaders and financial industry groups
Biden Administration’s Last-Minute Medical Debt Relief
In a significant move, the Biden administration has announced a new rule that will ban unpaid medical bills from appearing on consumer credit reports. This decision, revealed by Vice President Kamala Harris and the Consumer Financial Protection Bureau (CFPB), aims to alleviate the financial burden on millions of Americans struggling with medical debt.
The rule is set to remove a staggering $49 billion in medical debt from the credit reports of over 15 million Americans. This action addresses the fact that medical debt is currently the largest source of debt in collections, surpassing credit cards, utilities, and auto loans.
Biden admin finalizes rule to ban medical debt from credit reports https://t.co/Vind67AMbJ
— Axios (@axios) January 7, 2025
Potential Impact on Credit Scores and Mortgages
The CFPB estimates that this change could raise credit scores by an average of 20 points for affected individuals. This boost in credit scores is expected to have a tangible impact on Americans’ financial prospects, potentially leading to the approval of an additional 22,000 mortgages annually.
“No one should be denied economic opportunity because they got sick or experienced a medical emergency.” – Vice President Kamala Harris
This statement from Vice President Harris underscores the administration’s stance that medical emergencies should not result in long-term financial penalties. The rule aims to prevent lenders from assessing borrowers based on their medical debt, thus increasing accessibility to credit and financial resources for those previously hindered by healthcare-related liabilities.
Opposition and Support
While the American Medical Association has endorsed the new rule, it has faced opposition from Republican congressional leaders and trade groups representing banks and credit bureaus. Critics argue that the timing of the announcement, shortly before President-elect Donald Trump’s inauguration, amounts to “partisan rulemaking.”
“The financial system, its institutions, consumers, and the CFPB itself do not benefit from last-minute partisan rulemaking attempts.” – current Chairman Rep. Patrick McHenry, R-N.C.; and Rep. French Hill, R-Ark
The CFPB contends that medical debt is a poor predictor of loan repayment ability, justifying its removal from credit reports. This stance aligns with previous actions by major credit bureaus Experian, Equifax, and TransUnion, which had already removed medical collections debt under $500 from credit reports.
Uncertain Future Under New Administration
As the rule was enacted in the final days of the Biden administration, its future remains uncertain. The incoming Trump administration could potentially reverse this decision. Republicans have expressed a desire to reduce the power of the CFPB, viewing it as over-regulatory.
