Medical debt banned from credit reports by new Biden administration rule

Unpaid medical bills will no longer appear on credit reports, where they can block people from getting mortgages, car loans or small business loans, according to a final rule announced Tuesday by the Biden administration.

The Consumer Financial Protection Bureau rule will remove $49 billion in medical debt from the credit reports of more than 15 million Americans, according to the bureau, which means lenders will no longer be able to take that into consideration when deciding whether to issue a loan.

The change is estimated to raise the credit scores by an average of 20 points and could lead to 22,000 additional mortgages being approved every year, according to the bureau.

Vice President Kamala Harris said in a statement announcing the rule that it would be “lifechanging” for millions of families, “making it easier for them to be approved for a car loan, a home loan, or a small-business loan. … Our historic rule will help more Americans save money, build wealth, and thrive.”

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“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” she said.

But, the Reuters news agency points out, Tuesday’s announcement came despite demands from Republicans in Congress that the Biden administration stop issuing new rules with President-elect Donald Trump set to take office. That means he or his congressional allies may try to reverse the ban.

“Though Team Trump is likely to try to freeze or reverse these actions, it is not guaranteed,” Jaret Seiberg, an analyst with TD Cowen Washington Research Group, said in a report. “Trump 2.0 is more populist than in 2017, which is why undoing a ban on including medical debt on credit reports or dropping an enforcement action against a credit bureau may not be a priority.”

Harris also announced that states and local governments have used a sweeping 2021 pandemic-era aid package to eliminate more than $1 billion in medical debt for more than 700,000 Americans.

The administration announced plans for the rule in fall 2023.

The CFPB said medical debt is a poor predictor of an individual’s ability to repay a loan. Experian, Equifax and TransUnion, the three national credit reporting agencies, said last year that they were removing medical collections debt under $500 from U.S. consumer credit reports.

“Medical debt burdens millions of families across the country and can unfairly tarnish a person’s credit record, making it more difficult to qualify for an affordable loan, get a job, or even rent an apartment,” Chuck Bell, advocacy program director for Consumer Reports, said in a statement. “Many consumers have medical debt on their credit reports that is inaccurate or under dispute because our medical billing and insurance reimbursement system is so complex and confusing.” 

The new rule from the Biden administration is set to take on the outstanding bills appearing on credit reports.