The Biden administration on Tuesday announced a new proposed rule to eliminate medical debt from credit reports, potentially helping about 100 million Americans who struggle to pay their medical bills. The new rule, proposed by the Consumer Financial Protection Bureau (CFPB), aims to bring relief to patients who have had trouble getting approved for loans, renting an apartment, getting a job and being able to pay for everyday essentials due to medical debt. . The CFPB is a government agency whose goal is to make financial markets fair for Americans.
“The CFPB is trying to end the foolish practice of weaponizing the credit reporting system to coerce patients into paying medical bills they don’t owe,” said CFPB Director Rohit Chopra. in a press release. “Medical bills on credit reports are often inaccurate and have little or no predictive value when it comes to paying off other loans.”
Here’s what the new proposal could mean for you and your wallet.
What’s going on?
The agency’s anticipated proposal advances an initiative by Experian, Equifax and TransUnion into 2022. The consumer reporting agencies medical debt removed who entered credit report collections after being paid and eliminated medical debt balances less than $500. New rule eliminates medical debt from all U.S. credit reports for remaining 15 million Americans with outstanding medical debt of $49 billion in collections.
Under the new proposal:
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Consumer reporting companies like Experian, Equifax and TransUnion would be prohibited from including medical debt and billing information in credit reports. Lenders use this information to make underwriting decisions – a crucial practice in the mortgage process that evaluates whether a person is approved for a loan.
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Lenders would be prohibited from repossessing medical devices as collateral for a loan and if people were unable to repay the loan.
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Debt collectors would be prohibited from coercing payments on inaccurate or false medical bills, a problem many Americans have complained to the CFPB. Inaccurate medical bills are often the subject of disputes between patients and billing departments that can last for years.
The CFPB, the Treasury Department, and the Department of Health and Human Services requested public comment try to understand “medical credit cards, loans, and other financial products used to pay for healthcare” and the effects the products can have on patients and the healthcare system. The rule, if finalized, would likely not take effect until 2025.
Vice President Kamala Harris also called on cities, states and hospitals to forgive debt during Tuesday’s meeting. Press call to announce actions.
What could this mean for you?
Millions of Americans who have medical debt in collections, which hurts their credit scores, could get a credit score boost an average of 20 points under the new plan when the debt is paid off.
Medical debt is the largest source of debt in collections, according to the White House, representing more than car loans, credit cards and utility bills combined. This type of debt disproportionately affects Black and Hispanic people like this people living in the south. An estimated 11 million Americans had $2,000 in debt of this type and 3 million Americans had medical debt exceeding $10,000.
The CFPB also found that the appearance of medical debt on a credit report can create an inaccurate prediction about whether a person will pay off other types of debt. This can create barriers to accessing auto, home, or small business loans or can make these loans available only at high interest rates.
Under the new rule, the CFPB predicts that every year, 22,000 more Americans will be approved for mortgages, which ultimately benefits lenders by allowing them to approve more people for loans.
The new rule could also provide relief to about 63% of families with medical debt who have had to reduce their spending on basic needs, such as food and clothing, while trying to pay off the debt. Around 48% of them also had to resort to their savings, according to research from the Kaiser Family Foundation.
Additionally, many Americans have struggled to save for retirement or higher education due to medical debt, the Kaiser Family Foundation found.
Are there any disadvantages to this plan?
Some hospitals and medical providers have warned that the Biden administration’s proposal could encourage doctors to request upfront payments before providing care. Some have also suggested that the plan’s looser credit requirements could make it easier for people to take on debt they can’t repay, according to NPR.
“It is unfortunate that the CFPB and the White House are not considering the range of consequences that will result if medical providers are singled out in their billing compared to other professions or industries,” said Scott Purcell, CEO of ACA International, the billing industry. leading trade association, told NPR.
