The Biden administration announced a new proposal to ban medical debt from credit reports.
This initiative aims to help over 15 million Americans by removing medical debt from their credit records, which could boost their credit scores by an average of 20 points. According to Vice President Kamala Harris’s office, this change might lead to around 22,000 additional mortgages being approved yearly.
This proposal is part of a broader effort by the Biden administration to tackle the rising cost of living and improve economic conditions for Americans. Recent polls have shown that many voters are unhappy with President Joe Biden’s handling of the economy.
In 2020, approximately 46 million people had medical debt listed on their credit reports. The proposed rule not only aims to remove this debt but also plans to prevent lenders from using medical devices, like wheelchairs or prosthetic limbs, as collateral for loans. It would also stop lenders from repossessing these essential devices if patients cannot repay their loans. The rule is expected to be finalized early next year.
The Consumer Financial Protection Bureau (CFPB) has explored such proposals since last fall. The goal is to prevent unpaid medical bills from affecting credit reports. Creditors use these reports to decide on loans for homes, cars, and other purposes. Under the proposed changes, they could only use non-medical information when making these decisions.
Medical debt is a widespread issue. Over the past few years, medical bills have become the most common item in collections on credit reports. Rohit Chopra, the director of the CFPB, said that about 15 million Americans have over $49 billion in medical debt currently in collections. This is down from $88 billion reported in March 2022, after credit reporting agencies decided to exclude certain medical debt from reports.
Errors in healthcare bills often lead to prolonged disputes among patients, health insurers, and medical providers. Medical debt also significantly impacts the middle class. According to a 2023 report by Third Way, a center-left think tank, middle-class Americans are hit particularly hard. While they are likely to have better health insurance than lower-income individuals, they also don’t qualify for financial aid as easily. They may struggle with high deductibles and out-of-pocket expenses.
The report states that nearly a quarter of middle-class Americans, or about 17 million people, had unpaid healthcare bills in 2020. This compares to 22% of lower-income Americans and just under 13% of higher-income individuals.
The White House has been working to reduce the burden of medical debt to help people deal with inflation and rising living costs. In 2022, the administration introduced a four-point plan to protect consumers, including directing the CFPB to investigate credit reporting companies and debt collectors for violating patients’ and families’ rights.
In 2022, the three largest credit reporting agencies – Equifax, Experian, and TransUnion – announced they would remove nearly 70% of medical debt from consumer credit reports. They no longer include medical debt that has been paid off and now give people a one-year grace period before unpaid medical collection debt appears on credit reports, up from the previous six months. Also, medical collection debt of less than $500 is no longer included in credit reports.