Biden Admin to Chop Medical Debt from Credit Reports

(Dreamstime)

The Biden administration was set to propose a new rule Tuesday to ban medical debt from credit reports in effort to convince voters the White House is looking to improve financial opportunities for Americans.

The change, which could go into effect as early as next year, was to be announced by Vice President Kamala Harris and Rohit Chopra, director of the Consumer Financial Protection Bureau.

“Our research shows that medical bills on your credit report aren’t even predictive of whether you’ll repay another type of loan. That means people’s credit scores are being unjustly and inappropriately harmed by this practice,” Chopra said to ABC News.

The CFPB estimates that the new rule will permit 22,000 more people to get approved for safe mortgages each year, meaning lenders would also benefit from improved credit scores by being able to approve more borrowers.

In April, the CFPB released a report that showed more than 15 million Americans have a combined debt of more than $49 billion in outstanding medical bills. The study noted that some credit ratings organizations have already started to remove bills when assessing credit scores.

“Experian, Equifax, and TransUnion took steps to remove many medical bills in part because of the recognition that they hold little predictive value,” Chopra said in April. “Findings from our latest research reveal the impact of these changes and the need for further reforms.”

ABC noted that a Kaiser Family Foundation study from 2022 found that medical debt affects about 2 in 5 Americans, playing a large part in negatively impacting credit score, amd making car and home loans either not available or offered at high rates.

Not everyone views the change as being a positive development, fearing the rule will just be another added incentive for patients not to pay their bills.

When when the change was proposed in September 2023, the Association of Credit and Collection Professionals CEO Scott Purcell said: “There’s too much at stake for Americans’ access to quality healthcare by taking actions that only negatively affect the cash flow to the healthcare community without finding ways to replace those funds.”

Chopra disagrees that the change will result in more people defaulting on medical debt, saying borrowers will still face penalties if they don’t pay.

“Those individuals will still be subject to collection actions, lawsuits and more,” Chopra said. “There are plenty of ways that people get penalized for not paying their bills. I just don’t want to see the credit reporting system be weaponized against people who already paid them.”