With President-elect Donald Trump set to take office soon, the Biden administration has been using its executive power to issue various new rules and policies, including security aid for Ukraine, commuting death-row sentences, and eliminating medical debts from Americans’ credit reports.
In a recent move, President Joe Biden finalized a rule that eliminates unpaid medical bills from credit reports, a change expected to free millions of Americans to secure mortgages, car loans, and small business loans without being hindered by medical debt.
The Consumer Financial Protection Bureau (CFPB) announced on January 7 that it will erase an estimated $49 billion in medical debt from the credit reports of around 15 million Americans. The latest guidelines remove all medical debts, no matter the amount.
The new rule prevents medical bills from being listed on credit reports and bans lenders from considering medical information in lending decisions, according to the CFPB. By taking this action, the agency aims to offer much-needed relief to millions burdened by medical debt.
In a statement, Vice President Kamala Harris called the new rule “life-changing” for millions of families. “No one should be denied economic opportunity because they got sick or experienced a medical emergency,” she said.
Harris also shared that states and local governments used a 2021 pandemic aid package to wipe out over one billion in medical debt for more than 700,000 Americans.
Until this change, unpaid medical bills could show up on your credit report, hindering mortgage or credit approval and affecting your credit score. For Black Americans, the rule could help address systemic inequities, including the disproportionate rate of Black people affected by medical debt.
In fact, a study by the Kaiser Family Foundation found that 40 percent of Black Americans reported problems paying medical bills, compared to 29 percent of white Americans. According to the National Consumer Law Center, 27.9 percent of Black households carry medical debt, compared to 17.2 percent of white non-Hispanic households.
Medical bills on credit reports are poor predictors of loan repayment and lead to thousands of rejected mortgage applications that could be repaid, the CFPB noted in its press release.
“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
Through the rule, the agency expects to approve about 22,000 more affordable mortgages annually. Americans with medical debt on their credit reports could see a 20-point credit score increase.
The group added that consumers “frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.”
Meanwhile, CNBC highlighted a separate report by the CFPB that found Americans had about $88 billion in medical debt on their credit reports as of 2022, which often came from emergency situations or didn’t accurately reflect what was owed.
Collection agencies used these reports to pressure patients into paying, even if they didn’t owe the money, the CFPB said. As a result, the three major credit bureaus—TransUnion, Equifax, and Experian—removed some medical debts under $500 from credit reports.
The CFPB said it is removing medical debts because they don’t help lenders decide if someone will repay a loan. Many consumers with unpaid medical bills had no other credit issues, like delinquency on other loans, according to CFPB research from 2014.
“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.
