Breaking News: Medical Debt Soon will be Banned on Credit Reports

By Evans Momodu
3 minute digest


The Biden administration is finalising a rule to eliminate the inclusion of medical debt on credit reports and prohibit lenders from using certain medical information in loan decisions.

Announced by the Consumer Financial Protection Bureau (CFPB), the rule will remove $49 billion in medical debt from the credit reports of approximately 15 million Americans. It is set to take effect 60 days after its publication in the Federal Register.

Rohit Chopra, the CFPB’s director, emphasized that people facing illness should not have their financial futures jeopardised. He noted that the rule addresses long-standing abuses in the credit reporting system, where debt collectors have used medical debt to pressure payments, even for bills that may not be owed.

The rule also prohibits lenders from using medical devices like wheelchairs or prosthetic limbs as collateral for loans or repossessing them if patients cannot repay.

Exceptions exist for loans specifically requested to cover medical expenses or cases where borrowers seek temporary payment delays for medical reasons.

The CFPB estimates the rule will lead to an average 20-point increase in credit scores for affected individuals, potentially enabling around 22,000 additional mortgages annually.

Consumer advocates have welcomed the decision, highlighting its potential to reduce financial barriers for families burdened by medical costs.

Vice President Kamala Harris called the measure "life-changing," noting it will facilitate access to car loans, home loans, and small business financing.

However, the rule faces criticism from Republican lawmakers, credit agencies, and debt collectors. Detractors argue it could undermine credit reporting accuracy and financial risk management.

With the incoming Trump administration and Republican-controlled Congress, the rule could be subject to reversal under legislative review.

The Consumer Data Industry Association has expressed opposition, asserting that the rule interferes with credit reporting standards.

Meanwhile, proponents argue that medical debt is an unreliable indicator of creditworthiness, given the frequency of billing errors and the complexities of the healthcare system. They contend the changes are a necessary step toward reducing the financial strain on Americans dealing with medical expenses.
Source: CNN 
Image: WAOW