A proposed rule would erase unpaid medical bills from people’s credit reports. This is good news for people who are trying to get their finances back on track after a health emergency, the Biden administration said Tuesday.
Most of Americans’ medical debt was already taken off their credit reports by the three main credit bureaus. However, the Consumer Financial Protection Bureau’s new rule would erase most of the remaining medical debts that show up.
The CFPB says that if the rule is made official, it will erase up to $49 billion in medical debts from the records of 15 million Americans. The credit score would go up by an average of 20 points if the debts were taken off the report, the consumer watchdog group said.
However, the debts will still be there. Health care debt may have reached at least $220 billion in the United States by the end of 2021, according to KFF and the Peterson Centre on Healthcare.
That is, the proposed rule from Tuesday doesn’t get rid of the $49 billion in debt that is already on file. If someone wanted to get a car loan, a mortgage, a business loan, or any other kind of credit, lenders would not see these debts.
What the Biden administration says is that’s still a big step.
Vice President Kamala Harris said Tuesday, “No one should be denied access to economic opportunity just because they had a medical emergency.”
CFPB Director Rohit Chopra said that medical debts often have mistakes and that debt collectors may be using wrong information. He said that too often, “people give up and pay a bill they don’t actually owe just to get peace of mind and move on with their life.”
A top official in the Biden administration says the rule might not be finalised until early 2025. The rule would cover both medical and dental debts that have not been paid, the official said.
The debts would make it easier for Americans to get another 22,000 mortgages every year, according to estimates from the administration. This is because credit scores would get better.
Lenders could use medical debt to decide if someone is creditworthy in some situations, like when figuring out if someone is disabled and how much money they might be able to make on a loan.
The Consumer Data Industry Association, which is made up of Equifax EFX, -0.99%, TransUnion TRU, -0.32%, and Experian EXPGY, +0.64%, and other big credit bureaus, said it was looking over the proposed rule.
“The Nationwide Consumer Reporting Agencies understand the important role we play in the financial lives of Americans, and we remain committed to helping all consumers get fair and affordable credit,” the group said.
Consumer groups were happy with what the CFPB said.
Patricia Kelmar, director of healthcare campaigns at U.S. PIRG, said, “These new proposed rules are a big step towards making a fair credit system that doesn’t punish people for things they can’t control, like getting sick or hurt.”
Medical debt is still a big problem for Americans’ finances. In the most recent Federal Reserve study on consumer finances, 17% of people said they were responsible for paying off their own or a family member’s medical debts.
Fed researchers heard from one in five people who had to pay for medical bills they hadn’t planned on in the past year. The average amount they had to pay was between $1,000 and almost $2,000.
Not many states, cities, or counties are paying off their residents’ medical debts. New York City is one of them. There was a $1.9 trillion COVID-19 relief package in 2021, and these places are using $7 billion of the money they haven’t spent to pay off people’s medical debt, the White House said Tuesday.
The news comes at the same time that the Biden administration is trying to get rid of federal student loan debt.
A poll from UChicago Harris/AP-NORC on Tuesday said that medical debt should be the top priority. Over 51% of people said it was extremely or very important to forgive medical debt. Only 39% said the same thing about student loans.
