There may soon be one less thing to worry about: Unpaid medical bills will no longer be included on credit records or impact loan decisions. The rule — finalized by the Consumer Financial Protection Bureau earlier this week — aims to reduce the burden of medical debt and ensure that patients with outstanding bills aren’t hindered from getting home mortgages, car loans, or small business loans.
According to the CFPB, the rule will remove $49 billion in medical debt from the credit reports of 15 million Americans, which could boost their credit scores by an average of 20 points. “People who get sick shouldn’t have their financial future upended,” Director Rohit Chopra said in a statement.
The bureau’s research has found that medical debt is a “poor predictor” of an individual’s ability to pay back a loan, and yet it still plays a role in thousands of denied mortgage applications. That’s something this ban is seeking to change. Once the new rule is implemented, the CFPB projects an additional 22,000 mortgages will be approved each year.
“This decision is great news for everyday Americans,” Carrie Joy Grimes, founder of personal finance organization WorkMoney, told the Associated Press. “Medical debt is not a reflection of being bad with money — any one of us can experience illness or injury. With this new rule, Americans will now be able to focus less on the strain of medical debt and more on getting back on their feet.”
The ban comes on the heels of major changes made by nationwide credit reporting companies Equifax, Experian, and TransUnion in 2023. Those changes included taking all paid medical debts off consumer credit reports as well as reports under a year old, and removing all medical collections under $500. FICO and VantageScore eventually followed suit, proclaiming they would lessen the impact of medical bills on credit scores.
Not only does the recent rule take these measures a step further, but it also aims to protect consumers from “coercive debt collection practices,” per the statement. According to the CFPB, debt collectors often ask consumers to pay inaccurate bills or expenses that insurance companies or financial assistance programs should have covered.
The new guardrails follow an October statement from the Bureau, which clarified that debt collectors are “violating federal law when they collect on inaccurate or legally invalid medical debts.” Plus, lenders will now be prohibited from holding medical devices (like prosthetic limbs) as collateral for loans in case of repossession.
This rule, which will go into effect March 14, will “provide relief to millions of people that have unfairly had their credit impacted simply because they got sick,” Mona Shah, senior director of policy and strategy at the health justice organization Community Catalyst, said in a statement.
“Nobody, no matter where we live or how much money we have, should be forced to make the impossible choice between getting essential care and going into debt,” continued Shaw. “And they should not have to worry that medical debt could prevent them from buying a house or securing an auto loan because of its impact on their credit.”
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