The Consumer Financial Protection Bureau recently announced the finalization of a rule that will remove around $49 billion in medical debt from credit reports, benefiting an estimated 15 million Americans. This change is expected to increase credit scores by an average of 20 points for individuals with medical debt on their reports and lead to the approval of approximately 22,000 additional affordable mortgages annually.
The new rule prohibits consumer reporting agencies from including medical debt information in credit reports sent to lenders and prevents creditors from using certain medical information in lending decisions. This follows the CFPB’s proposal of the rule in June, aiming to address the issue of over 100 million Americans struggling with medical debt, which is the largest type of debt in collections.
The move by the CFPB comes after research found that medical bills on credit reports are not indicative of loan repayment likelihood. The agency’s Director noted that the rule will prevent debt collectors from misusing the credit reporting system to pressure individuals into paying potentially inaccurate medical bills.
Additionally, a report by the agency revealed that as of June 2021, medical bills accounted for $88 billion of debts reported on credit reports. In response, major credit reporting agencies and credit scoring companies have already taken steps to reduce the impact of medical debt on credit scores.
In conjunction with the rule finalization, Vice President Kamala Harris announced the elimination of over $1 billion in medical debt for more than 750,000 Americans in certain states, counties, and cities. The American Rescue Plan Act is set to support the elimination of up to $7 billion in medical debt for almost 3 million Americans by the end of 2026. Harris emphasized the importance of ensuring economic opportunities for individuals who have experienced medical emergencies or illnesses.