The Biden administration has put into effect a regulation which would eliminate medical debts from credit reports and also prohibit medical information from being used as a basis for determining eligibility for loans by lenders. This regulation has been announced by the Consumer Financial Protection Bureau (CFPB) and will come into force 60 days post-publication in the Federal Register. This paradigm-shifting regulation is believed to relieve about $49 billion in medical bills from some 15 million American people’s credit reports.
“People get sick, but this does not mean that they should throw their financial life off the track,” said CFPB Director Rohit Chopra. The new regulation tries to tackle long-standing complaints that medical debt impacts consumers’ financial situation too disproportionately. The measure will also prevent lenders from using medical equipment such as wheelchairs and prosthetic limbs as collateral for loans since these necessary items cannot be repossessed on claims of not paying debts.
Average credit scores among consumers will rise by 20 points due to the regulation. On the other hand, this is expected to beautifully translate into a count of about 22,000 extra mortgages approved every year. “This will be life-changing for millions of families, making it easy for them to be approved for a car loan, a home loan, or a small-business loan,” said Vice President Kamala Harris.
The rule, however, faces opposition from some Republican lawmakers and industry groups opposing it on grounds that it can threaten report accuracy, increase financial risks, and even deny access to credit for low-income consumers. Nevertheless, the Biden administration sees the need for reducing the weight of the medical debts borne by Americans, given evidence funded by research indicating that such debts are not good predictors of one’s ability to repay loans.
Broader efforts to alleviate medical debt
Following on from previous initiatives that continue to mitigate the impacts of medical debt, the new rule complements those efforts. Recently, medical bills became the most often collected items on credit reports. For some, high healthcare costs would continue to have a massive impact as over 100 million people in America are believed to suffer from medical debt.
Previously, the Biden administration detailed a four-point plan to protect consumers, which included an investigation of credit reporting agencies and debt collectors. Furthermore, the three major credit bureaus have recently removed nearly 70% of medical debt from credit reports in the year 2022. Changes included extending the time before unpaid medical debts appear on credit reports and excluding debts below $500.
Not only have regulations changed, but local governments also participated in the fight for medical debt alleviation. States, counties, and cities have removed more than 1 billion dollars in medical debt held by over 750,000 Americans through local funds from the American Rescue Plan Act. With this effort, it would be expected to wipe out debts worth 7 billion dollars by the end of 2025 for almost 3 million people.
North Carolina has also made considerable advances, creating a medical debt relief program designed to erase unpaid bills up to four billion dollars for low- and middle-income residents. In return for enhanced Medicaid reimbursements received by participating hospitals, hospitals commit not to incur new patient debts.
This effort as a whole to redress the burden of medical debt represents a part of what America is willing to invest in financial fairness for all Americans and whose ballast traditionally would have limited millions in their economic opportunity.
