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Biden rule would ban medical debt from credit reports

About 15 million Americans have $49 billion worth of medical debt in collections listed on their credit reports

Rohit Chopra, director of the CFPB, testifies during a Senate Banking Committee hearing last November. Chopra was part of a Tuesday call announcing a proposed rule that would bar credit reporting agencies from including medical debt on credit reports sent to lenders.
Rohit Chopra, director of the CFPB, testifies during a Senate Banking Committee hearing last November. Chopra was part of a Tuesday call announcing a proposed rule that would bar credit reporting agencies from including medical debt on credit reports sent to lenders. (Tom Williams/CQ Roll Call)

The Biden administration on Tuesday proposed a rule that would bar credit reporting agencies from including medical debt on credit reports sent to lenders, a decision aimed at keeping creditors from obtaining and using information about medical and dental debt to make credit eligibility determinations. 

“We are making it so that medical debt cannot be used against you when you apply for a car loan, a home loan or a small-business loan or something of that nature,” Vice President Kamala Harris said in a call with reporters announcing the rule.

Consumer Financial Protection Bureau Director Rohit Chopra said the rule would also mean aggressive debt collectors that buy medical debt from health care providers would have less leverage to force consumers to pay for collections that might not even be accurate. “Some have seized on medical debt as a major money-making enterprise,” he said.

Debt collectors buy debt for pennies on the dollar and then threaten to report it to credit reporting agencies, which could harm someone’s credit score and ability to access a loan significantly, Chopra said. “The credit reporting system is more closely resembling a weapon for debt collectors, rather than a tool for lenders to assess someone’s likelihood to repay a loan,” he said. 

Chopra said he expects the rule to be finalized early next year.

About 15 million Americans have $49 billion worth of medical debt in collections listed on their credit reports, according to data released in April by the CFPB.

That figure remains even though the three major credit reporting agencies — Equifax, Experian and TransUnion — announced last year that medical debt in collections under $500 would be removed from credit reports. Those changes had an impact: 14 percent of Americans had unpaid medical bills on their credit reports as of March 2022, a figure that dropped to 5 percent in June 2023, after the changes took effect.

But Chopra said more action is needed.

Medical debts are often inaccurate because of insurance company or provider errors. And medical debt’s presence on a credit report can have significant consequences. The proposed rule could lead to an average 20-point increase in credit scores for people with medical debt and an additional 22,000 home loans each year, he said.

“As a result of these changes, consumers’ sensitive medical information would be protected and consumers would no longer be unfairly penalized in the credit market for having medical debt,” the rule stated.

The proposed rule notes that people with unpaid medical debt would still owe that debt, debt collectors could still collect on it and patients could be sued by health care providers.

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