Introduction

The Biden administration is taking steps to eliminate medical debt’s impact on consumer credit scores. The Consumer Financial Protection Bureau (CFPB) has proposed new rules to prevent unpaid medical bills from affecting patients’ credit scores, recognizing that medical debt can lead to financial difficulties and limit options for housing, loans, and credit cards.

The Significance of Credit Scores

Vice President Kamala Harris emphasizes that credit scores determine a person’s economic health and wealth. They play a crucial role in purchasing a home, buying a car, renting an apartment, or starting a small business.

The Prevalence of Medical Debt

Medical debt is the most common form of debt in collection. The CFPB found that 58% of third-party debt collection on consumer credit reports is related to medical bills. Additionally, the complex nature of medical billing makes it prone to errors, with an estimated 80% of medical bills containing mistakes.

Proposed Solutions by the CFPB

The CFPB intends to prohibit consumer reporting companies like Equifax, TransUnion, and Experian from including medical debts and collection information on credit reports. While these companies have already ceased reporting medical debts under $500, the proposed rules would make this mandatory for all medical debts.

Limiting Creditors’ Use of Medical Bills

The CFPB also aims to prevent creditors from considering medical bills for underwriting decisions. They argue that if credit bureaus are already excluding this information due to its limited predictive value, creditors should not have access to it either. The goal is to prevent debt collectors from using credit reports to pressure individuals into paying questionable medical bills.

Reaction and Next Steps

The CFPB expects to issue a formal rule next year. While some express concerns about potential consequences for medical providers, others, such as Senator Elizabeth Warren, support the initiative, highlighting the financial relief it would provide to Americans burdened by medical debt.

— ‘s Chelsey Cox contributed to this story.