The Biden administration on Tuesday announced a new proposed rule to remove medical debt from credit reports, potentially helping an estimated 100 million Americans struggling to pay their medical bills. The new rule, proposed by the Consumer Financial Protection Bureau (CFPB), aims to provide relief to patients who have had difficulty getting approved for loans, renting an apartment, finding a job and being able to pay the daily necessities due to medical debt. . The CFPB is a government agency whose mission is to make the financial markets fair for Americans.
“The CFPB is working to end the senseless practice of weaponizing the credit reporting system to force patients to pay medical bills they do not owe,” CFPB Director Rohit Chopra said in a news release. “Medical bills on credit reports are too often inaccurate. and have little to no predictive value when it comes to repaying other loans.”
Here’s what the new proposal could mean for you and your wallet.
⚕️What’s happening?
The agency’s expected proposal advances an initiative by Experian, Equifax and TransUnion in 2022. The consumer reporting agencies eliminated medical debt that ended up on credit reports once it was paid off, eliminating medical debt under $500. The new rule eliminates medical debt from all credit reporting in the US for the remaining 15 million Americans with outstanding medical debt of $49 billion in collections.
Under the new proposal:
-
Consumer reporting companies like Experian, Equifax and TransUnion should not include medical debt and collections information on credit reports. Creditors use that information to make underwriting decisions – a crucial practice in the mortgage process that involves weighing whether to approve someone for a loan.
-
Lenders should not be allowed to take back medical devices as collateral for a loan and if people cannot repay the loan.
-
Collection agencies would be prohibited from enforcing payments for inaccurate or false medical bills, an issue that many Americans have complained about to the CFPB. Inaccurate medical bills are often the subject of disputes between patients and billing departments that can last years.
The CFPB, the Treasury Department, and the Department of Health and Human Services have requested public comment in an effort to understand the “medical credit cards, loans, and other financial products used to pay for health care” and the effects that these products may have. have on patients and the healthcare system. If the rule becomes final, it likely won’t go into effect until 2025.
Vice President Kamala Harris also called on cities, states and hospitals to forgive debt during Tuesday’s press call announcing the actions.
🏥What could this mean for you?
Millions of Americans with medical debt in collections, which is hurting credit scores, could see a score increase of an average of 20 points if the debt is wiped out under the new plan.
According to the White House, medical debt is the largest source of debt in collections, representing more than auto loans, credit cards and utility bills combined. This type of debt disproportionately affects Black and Latinx people, as well as people living in the Global South. An estimated 11 million Americans had $2,000 in such debt and 3 million Americans had medical debt of more than $10,000.
The CFPB also found that the appearance of medical debt on a credit report can provide an inaccurate prediction about whether someone will repay other types of debt. This can create barriers to access to car, home or small business loans, or may mean that such loans are only available at high interest rates.
Under the new rule, the CFPB predicts that 22,000 more Americans will be approved for mortgages each year, which ultimately benefits lenders, allowing them to approve more people for loans.
The new rule could also provide relief to about 63% of households with medical debt, who have had to reduce their spending on basic needs such as food and clothing as they try to pay off the debt. About 48% of them have also had to dip into their savings, according to research from the Kaiser Family Foundation.
Additionally, many Americans struggle to save for retirement or higher education due to medical debt, the Kaiser Family Foundation found.
👎 Are there any disadvantages to this plan?
Some hospitals and medical providers have warned that the Biden administration’s proposal could encourage doctors to request upfront payments before providing care. Some have also suggested that the plan’s looser credit requirements could make it easier for people to take on debt they can’t handle, according to NPR.
“It is unfortunate that the CFPB and the White House are not considering the many consequences that will result from singling out medical providers in their billing compared to other professions or industries,” said Scott Purcell, CEO of ACA International, the industry trade association the debt collection industry. leading industry organization, told NPR.
