Biden Administration Finalizes Rule to Ban Medical Debt from Credit Reports

What Happened?

The Biden administration is finalizing a rule Tuesday that will remove unpaid medical debt from American credit reports.

In a press release, the Consumer Financial Protection Bureau (CFPB) said the rule will remove an estimated $49 billion in medical bills from the credit reports of about 15 million people.

The move will increase privacy protection and ban lenders from using medical information for loan decision-making.

Preventing debt collectors from using the credit reporting system to coerce people to pay bills they don’t owe is something CFPB's Director Rohit Chopra states will also change due to this rule.

Chopra added, 'People who get sick shouldn’t have their financial future upended.'

The CFPB expects the rule will result in the approval of approximately 22,000 additional affordable mortgages annually and credit scores to rise by an average of 20 points for Americans with medical debt, according to research.

These actions follow recent changes made by credit reporting agencies Equifax, Experian, and TransUnion, who announced that certain types of medical debt, including collections under $500, would be removed.

The measure, first proposed last June, would take effect 60 days after published in the Federal Register.

Why it Matters

The regulations fulfill a pledge by the Biden administration to address the healthcare debt crisis that many Americans have faced.

Many warn however that these measures could be reversed after President-elect Donald Trump takes office.

Congress has a limited time to review and rescind final rules.

Several House Republicans raised concerns in August to Director Chopra about the proposal, suggesting it 'will undermine underwriting processes and increase risk in the financial system.'

The letter added, 'This effort will have significant negative effects on access and affordability of credit for all consumers, and particularly for low-income borrowers.'

The CFPB states that the final rule brings regulations in alignment with Congress’ decision to safeguard consumers’ privacy by restricting lenders from obtaining or using medical information.

Billionaire Elon Musk, who Trump has appointed to co-lead DOGE, has called for the elimination of the watchdog agency.

Musk said in a social media post, 'Delete CFPB. There are too many duplicative regulatory agencies.'

Credit reporting agencies and debt collectors are also reportedly expected to oppose the rule as they question the bureau’s findings and its authority to issue the regulation.

How it Affects You

Vice President Kamala Harris announced the rule would be 'life-changing' for millions of families.

Medical bills have reportedly become the most common collection item on credit reports in recent years.

This action can certainly act as a stepping stone for millions of families who struggle with medical debt and aim to get back on track.

It still will be key to determine how the incoming administration under Trump decides to weigh this matter as a priority to freeze or reverse from taking effect.