Medical debt soon will be banned on credit reports

By Tami Luhby, CNN

(CNN) — Americans won’t have to worry about unpaid medical bills damaging their credit reports and scores much longer.

The Biden administration is finalizing a rule Tuesday that will end the inclusion of medical debt on credit reports and ban lenders from using certain medical information in loan decisions.

The rule will also remove an estimated $49 billion in medical bills from the credit reports of about 15 million people, the Consumer Financial Protection Bureau (CFPB) said in a press release.

“People who get sick shouldn’t have their financial future upended,” Rohit Chopra, the bureau’s director, said in the release. “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.”

The measure, which was proposed last June, takes effect 60 days after it is published in the Federal Register.

However, Republican lawmakers who control Capitol Hill and the incoming Trump administration, which has vowed to eliminate regulations, could upend the rule. Congress has a limited period of time when it can review and rescind final rules, which has typically happened when a new president takes office.

Several House Republicans wrote to Chopra in August to express their “serious concerns” that the proposed rule would “weaken the accuracy and completeness of consumer credit reports.” They warned it would undermine underwriting processes, increase risk in the financial system and harm access to and the affordability of credit for consumers, particularly lower-income ones.

Credit reporting agencies and debt collectors are also expected to oppose the rule. They questioned the bureau’s findings and its authority to issue the regulation in comments when it was proposed.

The Consumer Data Industry Association, which represents credit bureaus and others, said in a statement Tuesday that it is “evaluating the options available to safeguard the credit reporting system and combat the CFPB’s misguided foray into this area.”

But consumer groups cheered the announcement.

“This rule will provide relief to millions of people that have unfairly had their credit impacted simply because they got sick,” Mona Shah, senior director of policy and strategy at Community Catalyst, said in a statement. “Nobody, no matter where we live or how much money we have, should be forced to make the impossible choice between getting essential care and going into debt. And they should not have to worry that medical debt could prevent them from buying a house or securing an auto loan because of its impact on their credit.”

Bars repossessing of wheelchairs

The rule also bans lenders from using medical devices, such as wheelchairs or prosthetic limbs, as collateral for loans and bars them from repossessing the devices if patients are unable to repay the loans. However, lenders can continue to consider medical information in certain situations, including when a consumer requests a loan to pay health expenses or asks for a temporary postponement of loan payments for medical reasons.

Those with medical debt on their credit reports could receive a 20-point boost, on average, in their credit score, the bureau said. Also, the rule is expected to lead to the approval of about 22,000 additional mortgages every year.

“This will 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,” Vice President Kamala Harris said in a fact sheet.

Medical debt on credit reports is not a good predictor of a person’s ability to pay other loans, the bureau’s research has found. Plus, health care bills often contain mistakes, which can lead to extended battles among patients, health insurers and medical providers.

Weighty burden

High health care costs are among Americans’ biggest headaches. The murder of UnitedHealthcare CEO Brian Thompson in December unleashed a flurry of rage and frustration from social media users over denials of their medical claims.

There are varying estimates on just how many people have medical debt, but it’s a sizable share of the population. Harris pegged it at more than 100 million people.

In recent years, medical bills have become the most common collection item on credit reports, Chopra told reporters when the proposed rule was unveiled.

Helping minimize the impact of unpaid medical bills on consumers has been a priority for the Biden administration as it sought to assist Americans contending with higher costs of living. Trouble getting loans “makes it more difficult to just get by, much less get ahead,” Harris told reporters in June.

In 2022, the administration laid out a four-point plan to help protect consumers, including having the bureau investigate credit reporting companies and debt collectors that violate patients’ and families’ rights.

Also that year, the three largest credit reporting agencies — Equifax, Experian and TransUnion — announced they would remove nearly 70% of medical debt from consumer credit reports.

The agencies no longer include medical debt that went to collections on consumer credit reports once it has been paid off. That eliminated billions of dollars of debt on consumer records.

In addition, unpaid medical debt no longer appears on credit reports for the first year, whereas the previous grace period was six months. That gives people more time to work with their health insurers or providers to address the bills. And medical collection debt of less than $500 is no longer included on credit reports.

Plus, FICO and VantageScore reduced the degree to which unpaid medical bills impact credit scores.

Paying off medical debt

In a related effort, Harris announced Tuesday that states, counties and cities have eliminated more than $1 billion in medical debt for more than 750,000 Americans, using funding from the 2021 American Rescue Plan Act. States and municipalities are on track to wipe out an estimated $7 billion in medical debt for nearly 3 million Americans by the end of next year.

In addition, she noted, North Carolina has set up a medical debt relief program in which the state’s 99 eligible hospitals have promised to eliminate up to $4 billion in unpaid bills for nearly 2 million low- and middle-income residents, as well as have policies in place that reduce the chance that future patients will incur debts. In exchange, the participating hospitals become eligible for enhanced Medicaid reimbursements.

The-CNN-Wire
™ & © 2025 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.