Biden admin moves to keep medical debt off credit reports
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The Biden administration on Tuesday moved to prevent medical debt from affecting people's credit scores, potentially leading to $49 billion in liabilities being wiped from 15 million Americans' credit reports.
Why it matters: Officials said the proposed rule from the Consumer Financial Protection Bureau was linked to broader economic concerns, such as home ownership, and would prevent lending decisions from being based on a person's medical circumstances.
Driving the news: The rule would stop reporting companies from determining creditworthiness based on medical debts and sharing information about debts with lenders.
- Banning medical debt from credit reports would boost credit scores by 20 points on average, resulting in roughly 22,000 more mortgages being approved every year, they said.
- Officials will accept public comments over the next several months and plan to issue a final rule early next year.
"Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans," said CFPB Director Rohit Chopra in a statement.
The big picture: About 1 in 12 U.S. adults have unpaid medical bills of at least $250, according to a Peterson-KFF analysis released earlier this year.
- Medical debt can be particularly pronounced in some racial and ethnic groups, with roughly 37.5% of Black middle-class people having unpaid medical debt compared to 23.5% of middle-class people overall, per KFF.
- Hospitals have particularly drawn fire for aggressive collection practices. Injuries and illnesses can also cause individuals with private insurance to incur thousands of dollars in out-of-pocket costs to meet deductibles and other cost-sharing.
Catch up quick: Tuesday's announcement builds on a 2022 effort by the big credit bureaus TransUnion, Equifax and Experian to keep debt off consumers' reports until it's at least a year old.
- The two major credit scoring companies, FICO and VantageScore, have also reduced how much medical debts can factor into consumers' scores at that time.
