Biden Administration Proposes Wiping Medical Debt from Credit Records

If you have medical debt on your credit report, pretty soon, you won’t, under a new rule proposed by President Joe Biden’s administration.

The Consumer Financial Protection Bureau (CFPB) put forward a rule Tuesday barring any medical debt from appearing on credit reports, a move that would affect some 15 million people, according to the bureau. The rule, if finalized despite opposition from debt collectors, would go into effect early next year, bureau officials said on a conference call with reporters.

The rule, first announced last September, would wipe away old medical debt from the reports and ban the reporting of new debt, raising credit scores and making it easier for people to access mortgages, business loans, and other credit. The three major credit bureaus already have voluntarily taken medical debts under $500 from credit reports, so the new rule would affect the remaining, larger balances.

“Usually, medical debt is the result of a medical emergency, an unplanned, unexpected expense, often of tens to hundreds of thousands of dollars,” Vice President Kamala Harris said on a conference call with reporters. “No one should be denied access to economic opportunity simply because they experience a medical emergency.”

Government Says Medical Debt Is Unreliable Measure

Harris referred to previous bureau research showing that much medical debt on credit reports is erroneous—often the result of failures to navigate the confusing system of insurance and reimbursement of medical bills—and that it does a worse job than other kinds of debt at informing lenders about who will and won’t pay back their loans.

People affected by the change will have their credit scores increase by an average of 20 points, the bureau said, resulting in 22,000 additional mortgages being approved each year, the bureau said.

On top of banning medical debt, the rule would ban collectors from repossessing wheelchairs and prosthetic limbs used as collateral.

ACA International, a trade group representing debt collectors, opposes the rule change, saying it would hurt the ability of doctors and other health-care providers to be paid for the services they provide. 

“It is unfortunate that the CFPB and the White House are not considering the hosts of consequences that will result if medical providers are singled out in their billing compared to other professions or industries,” the ACA said in a statement last September after announcement of the CFPB medical-debt removal proposal.