Unpaid medical bills will no longer show up on credit reports, where they could previously hinder individuals from securing mortgages, car loans, or small business loans, according to a final rule announced Tuesday by the Biden administration.
The Consumer Financial Protection Bureau (CFPB) revealed that this new rule will remove $49 billion in medical debt from the credit reports of more than 15 million Americans. As a result, lenders will no longer consider medical debt when evaluating loan applications.
The CFPB estimates this change will raise credit scores by an average of 20 points and could lead to 22,000 additional mortgages being approved annually. Vice President Kamala Harris described the rule as "lifechanging" for millions of families, stating it will make it easier for them to secure loans for cars, homes, or small businesses. "No one should be denied economic opportunity because they got sick or experienced a medical emergency," Harris added.
Despite the announcement, Reuters highlighted potential challenges to the rule from Republicans in Congress, especially with President-elect Donald Trump soon to take office. Some analysts, however, suggest that a reversal is not guaranteed, given Trump’s increasingly populist stance, which might deprioritize undoing the ban.
Harris also noted that states and local governments have used a pandemic-era aid package from 2021 to erase over $1 billion in medical debt for more than 700,000 Americans.
The CFPB emphasized that medical debt is a poor indicator of a person’s ability to repay loans. The three major credit reporting agencies—Experian, Equifax, and TransUnion—had already started removing medical collections debt under $500 from consumer credit reports last year.
Consumer advocates welcomed the move. "Medical debt burdens millions of families and unfairly damages their credit, making it harder to get loans, jobs, or even rent an apartment," said Chuck Bell, advocacy program director for Consumer Reports. He added that inaccuracies and disputes are common due to the complexity of the medical billing system.
This new rule builds on prior efforts by the Biden administration and specifically targets larger, outstanding medical bills still appearing on credit reports.