Medical debt will be removed from credit reports in a White House proposed change that could help millions of Americans find a job, rent a home or get a car loan.
Vice President Kamala Harris and Rohit Chopra, director of the Consumer Financial Protection Bureau, formally announced at a news conference Tuesday the proposal to take unpaid medical bills off the table when determining a person’s creditworthiness.
The idea is to stop “unfairly punishing people when they get sick,” Chopra said. He pointed out the potential financial damage that can be caused by a visit to a hospital emergency room, a debt incurred “unexpectedly and at a time of crisis.”
The Biden administration announced his intention in September to craft the measure, one of the most significant federal actions taken to address medical debt.
The three largest credit agencies – Equifax, Experian and TransUnion – have stopped including certain medical debts on credit reports since last year. Excluded medical debt includes paid-off bills and bills of less than $500.
But the agencies’ voluntary actions left millions of patients with higher medical bills on their credit reports ignored.
About 15 million Americans have more than $49 billion in outstanding medical bills in collections, according to findings released by the CFPB in April.
Allowing debt to pile up due to often unplanned health care needs is a problem shared by many, forcing some to take on extra work, give up homes and ration food and other basic necessities, a KFF Health News survey found- NPR.
Credit reporting, a threat designed to force patients to pay their bills, is the most common collection tactic used by hospitals, according to an analysis by KFF Health News.
“Negative credit reporting is one of the biggest pain points for patients with medical debt,” said Chi Chi Wu, senior attorney at the National Consumer Law Center. “When we hear from consumers about medical debt, they often talk about the devastating impact that poor credit due to medical debt has had on their financial lives.”
While a single black mark on a credit score may not have a major impact for some people, it can be devastating for those with large unpaid medical bills. For example, there is mounting evidence that credit scores strained by medical debt can threaten people’s access to housing and fuel homelessness in many communities.
At the same time, CFPB researchers have found that medical debt, unlike other types of debt, does not accurately predict a consumer’s creditworthiness, raising questions about how useful this is for a credit report.
The rules announced Tuesday would bar credit reporting agencies from including medical debt when calculating credit scores. Lenders are no longer allowed to use medical debt to determine loan eligibility.
The proposal will face weeks of public comment and, if passed, likely won’t go into effect until 2025, after November’s presidential election — the outcome of which could derail the rule entirely.
