On Tuesday, the Consumer Financial Protection Bureau (CFPB) revealed a groundbreaking decision set to transform credit reporting for millions. They’ve finalized a rule that will strip away around $49 billion in medical debt from credit reports, impacting an estimated 15 million Americans.
For those burdened with medical debt on their credit scores, this could mean an average boost of 20 points. The CFPB predicts this positive shift will pave the way for approximately 22,000 new affordable mortgages each year.
This new rule means credit agencies can no longer include medical debts in reports and scores shared with lenders. Moreover, lenders won’t be able to use specific medical information when evaluating loan applications. This rule was initially proposed by the CFPB back in June.
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According to the Biden-Harris administration, over 100 million Americans struggle with medical debt, making it the largest type of debt in collections, surpassing auto loans, credit cards, and utility bills.
Many people often find themselves paying off balances that insurance or assistance programs should cover. The CFPB also points out that inaccurate medical billing is a frequent issue.
The CFPB’s action follows their research indicating that medical bills on credit reports poorly indicate a person’s ability to repay loans. As CFPB Director Rohit Chopra puts it, “People who get sick shouldn’t see their financial future derailed. This final rule tackles the loophole that has allowed debt collectors to misuse the credit reporting system, coercing people into paying medical debts they might not actually owe.”
A report from 2022 by the CFPB highlighted that as of June 2021, medical bills made up $88 billion in debts on credit reports. In response, leading credit reporting agencies like Equifax, Experian, and TransUnion have removed some medical debts, including those under $500, from reports. Credit scoring platforms like FICO and VantageScore have also adjusted, lessening the influence of medical debt on scores.
In addition to the CFPB’s announcement, Vice President Kamala Harris shared the exciting news that over $1 billion in medical debt has been wiped out for more than 750,000 Americans across various states, counties, and cities.
This relief spans places like New Jersey and Connecticut, Cook County in Illinois, Lucas County in Ohio, Wayne and Oakland counties in Michigan, and cities such as Cleveland, Toledo, New Orleans, St. Paul, and Washington, D.C.
Supported by the American Rescue Plan Act of 2021, it’s anticipated that up to $7 billion in medical debt could be erased for nearly 3 million Americans by the end of 2026.
Speaking on the matter, Harris emphasized, “No one should be barred from economic opportunities simply because they fell ill or faced a medical crisis.”
