Administration Moves to Bar Medical Debt From Credit Reports

WASHINGTON — The Biden administration on Tuesday moved to ban medical debt from appearing on credit reports, but it’s still unknown whether the new rule will survive the transfer of power to President-elect Donald Trump 13 days from now.

Tuesday’s action by the Consumer Financial Protection Bureau, which would enforce the new rule, would immediately scrub an estimated $49 billion in medical bills from credit reports, instantly raising the credit scores of about 15 million Americans.

It would also prohibit lenders from using medical information in their lending decisions, and prevent debt collectors from using the credit reporting system to coerce people to pay bills they don’t owe.

It is currently set to go into effect 60 days after the rule’s publication in the Federal Register, but several Republican lawmakers have already expressed concern over the measure.

The Well News has reached out to Trump’s transition team to get its response to the measure and will update this story when it does.

Bureau officials said a number of factors led to the formulation of the rule. The first was that they’ve found medical debts provide little in the way of predictive value when it comes to consumers’ ability to pay other debts.

Another was the large number of consumers who have reported either receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.

“People who get sick shouldn’t have their financial future upended,” said CFPB Director Rohit Chopra in a written 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,” Chopra said.

Biden administration officials meanwhile estimate that the simple removal of medical debt on credit reports will increase many consumers’ credit scores by as much as 20 points, helping them qualify for things like mortgages.

Congressional Republicans in the last Congress had a markedly different view.

In an August letter led by Rep. Patrick McHenry, R-N.C., then chairman of the House Financial Services Committee, nearly two dozen House Republicans said they had “serious concerns” about the measure.

“The CFPB’s recent notice of proposed rulemaking restricting inclusion of medical debt in credit 

reports and scores will undermine underwriting processes and increase risk in the financial 

system, to the detriment of consumers,” they wrote. “This effort will have significant negative effects on access and affordability of credit for all consumers, and particularly for low-income borrowers.”

They went on to assail the proposal, saying its “costs” would be borne by all consumers due to an increase in mortgage repayment defaults, health care providers being more apt to charge patients upfront for services, a higher cost for credit and the willingness of people to take on even more medical debt, because doing so will have fewer ramifications.

Lastly, they complained the policy proposal smacked of politics at a time when the outcome of the 2024 presidential election was anybody’s guess.

On Tuesday, it was Vice President Kamala Harris, the Democratic nominee for president, who served as the voice of the White House.

The new policy, she said, “will be life changing for millions of families, making it easier for them to be approved for a car loan, a home loan, or a small-business loan.

“As someone who has spent my entire career fighting to protect consumers and lower medical bills, I know that our historic rule will help more Americans save money, build wealth, and thrive,” Harris said.

Also weighing in during last summer’s public comment period on the proposal were the Bank Policy Institute and the Consumer Bakers Association, who said in a joint letter to Chopra that they believe the proposed rule suffered from “several problems.”

First and foremost, they said, the bureau simply does not have the authority to prohibit credit reporting agencies from providing medical debt information in consumer reports. 

Moreover, they said, “by significantly limiting creditors’ visibility into and consideration of a consumer’s medical debts and expenses in underwriting decisions, consumers may be extended more credit than they can afford, which could lead to default. 

“This would, in turn, ultimately increase the cost and decrease the availability of credit, harming all consumers,” they wrote.

“Furthermore, because the proposal would increase the likelihood that creditors may extend credit on which borrowers are more likely to default, lenders’ safety and soundness controls could be affected, which would be detrimental to the overall health of the financial system,” they added.

The two trade groups went on to dismiss the policy making effort as a “misguided attempt” to … address fundamental concerns about the high cost of medical care, inaccurate or inflated medical bills, and unlawful medical industry debt collection and reporting.

“While these may be valid policy concerns, these issues cannot be addressed by restricting the ability of creditors to consider medical debts in making underwriting decisions; rather, the concerns that underlie this proposal can only be changed by those entities themselves or by legislators or other policymakers with authority over those entities,” they said.

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