In the final days of his term, the Biden administration banned credit reporting agencies from including medical debt on their reports, aiming to make it easier to access credit, including loans and mortgages.
“No one should be denied economic opportunity because they become ill or experience a medical emergency,” Vice President Kamala Harris said. said The new rules were announced in a statement from the White House on Tuesday.
The administration first proposed this rule June 2024And the Consumer Financial Protection Bureau (CFPB) issued the final rule today.
The new rules are part of a constellation of federal, state and local strategies expanded by the Obama administration to reduce the burden of medical debt on Americans. Advocates hail the change as an important step, but its impact may not be as significant as the administration hopes. And Republicans are already speaking out against it. It is possible that the rule may be overturned or not enforced at all.
How sanctions – and medical debt reporting – work
it is Whether individual medical providers report credit to credit agencies. Information from that report is used to calculate an individual Credit scoreWhich helps lenders like banks determine how likely a person is to repay their accumulated debt. The idea of removing medical debt from credit reports is not new. In 2023, Big companies like TransUnion, Experian and Equifax Stop including medical debt under $500 on their credit report.
The new rule will “remove an estimated $49 billion in medical bills from the credit reports of nearly 15 million Americans,” According to the CFPB. The CFPB claims that medical debt is not actually a very good predictor of a person’s overall creditworthiness, and that “consumers often report receiving incorrect bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.”
Stanford University economics professor Neil Mahoney explained that the new rule only addresses medical debt when it has already gone into collection. “You can basically either address medical debt at the source, like right after a hospitalization, or you can sort things out downstream,” he said. other Downstream intervention included Medical Debt Retirementas Some municipalities did.
According to Francis Wong, an economist at Ludwig Maximilian University in Munich, this change could improve people’s financial situation.
“Our research indicates that people are better off, in the sense that removing medical debt from their credit report results in meaningful credit score increases, especially for those who do not show signs of financial distress beyond their medical debt,” Wong wrote in an email.
As part of a larger landscape of medical debt interventions, the new rule is an important tool because it can encourage people to continue seeking medical care, according to Eva Marie Stahl, vice president of programs and policy at Undue Medical Debt, an organization that helps. Pays off medical debt and suggests ethical solutions to medical debt.
“In some cases, [reported medical debt] “It’s at the top of people’s minds when they access health care. So we’re hoping that people today are breathing a sigh of relief and thinking a little differently about how they engage with the health system.” , so that they put their health care needs first.”
Will the new policy make any difference?
However, Wong and Mahoney, who worked together In a research paper on medical debt repaymentIt also warned how the new rules would affect people’s financial situation.
According to Mahoney, the change will be most significant for people who don’t carry much other debt. “There are people who have good credit other than medical debt and collections, and so you see, I think, meaningful credit score increases,” Mahoney told Vox. That might look like an average increase of 14 points and a $900 increase in credit limit, which is not insignificant.
Simply leaving medical debt off the credit report does not solve the larger problem of persistent medical debt. “Those who incur medical debt may be grappling with ongoing problems related to the original medical event, such as poor health and inability to work,” Wong wrote. For many people, it probably doesn’t mean the difference between getting and being denied a home loan, he said. “While removing medical debt from credit reports has the potential to increase access to credit card borrowing, the same may not be true for access to mortgages, given that fewer people with medical debt may be in a position to afford a mortgage.”
Ultimately, the debt still exists, whether it shows up on the credit report or not, and it affects people’s finances and their ability to access medical care.
Chances are, then, that no matter how much relief the rule brings to debt-ridden people, it won’t last. Republicans already in Congress pronounced It is against the rules both from a policy point of view and as such part of an effort from Reducing the CFPB’s regulatory agenda.
in An August memo To CFPB Director Rohit Chopra, members of the House Committee on Financial Services wrote that “restricting the inclusion of medical debt in credit reports and scores would harm underwriting processes and increase risk in the financial system, harming consumers” and argued that There will be rules “Significant negative effects on credit access and affordability for all consumers, and particularly for low-income borrowers.”
Banking industry lobbying groups, such as the Bank Policy Institute and the Consumer Bankers Association, Chopra urged to withdraw this rulesaid that it would actually make credit more expensive because access would improve because it would be riskier and more scarce. The groups also push back against the common argument that medical debt, as a product of circumstances beyond people’s control, is different from other types of debt related to lack of financial knowledge or adequate planning.
A Republican Congress may not have the votes to roll back the new rules. But the CFPB will change dramatically under the incoming Trump administration, and the leadership may ban medical loan credit reporting or Protection of other organizations Placed in the final months of the Biden administration.
