Biden Administration Moves to Ban Medical Debt From Credit Reports

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.

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.

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.

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.

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.

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.

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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.