The Biden administration announced Tuesday that it will move forward with plans to prevent medical debt from being included in credit scores.
“One of the most significant consequences of taking on medical debt is the damage it does to a person’s credit score,” Vice President Harris said at a press conference.
“Medical debt makes it harder for millions of Americans to get approved for a car loan, a home loan or a small business loan. is not fair.”
The government said in September that it had begun studying the possibility of banning medical debt from credit scores. At the time, the Consumer Financial Protection Bureau (CFPB) said it sought to prevent lenders from “relying on data that is often rife with inaccuracies and errors.”
The CFPB previously reported that medical debt is one of the most common forms of debt represented on credit reports. CFPB Director Rohit Chopra said Tuesday that medical debt is unique and should not be taken into consideration when evaluating someone’s creditworthiness.
“Medical debt on a consumer credit report is very different from a mortgage, an auto loan, or a credit card. Sometimes, like an emergency room visit, the debt is taken on unexpectedly and in a moment of crisis. Medical bills are also often subject to insurance coding errors, charity care errors or insurance complexities,” he said.
Chopra said medical debt has become a “huge money-making venture” for agencies that buy hospital debt for pennies on the dollar.
“The credit reporting system is more like a weapon for debt collectors than a tool for creditors to assess how likely someone is to repay a loan,” he added.
The proposed rule will be open for public comment until August 12.
According to senior administration officials, this rule is “simply closing a regulatory gap” that was left open after Congress passed the Fair and Accurate Credit Transactions Act of 2003. The bill restricts information sharing medical bills on credit reports, but regulatory exemptions remained.
Officials said Tuesday that the new rule, which will take effect retroactively on past medical bills, will allow for more robust assessments of creditworthiness in the future.
Medical debt experts previously called for the rule to recognize how healthcare costs are often passed on by patients who pay for them through personal loans or credit cards. Administration officials said the rule will not extend to third-party creditors, since debts incurred through paying hospital bills would be considered new debt obligations.
Advocacy groups welcomed the proposal.
“Medical debt is an unfair burden on millions of people and I am thrilled to see the CFPB taking on
action,” said Allison Sesso, CEO of the nonprofit Undue Medical Debt, in a statement.
“Access to necessary healthcare should have zero impact on creditworthiness, and although many providers, like hospitals, have stopped reporting to credit bureaus, this is still a huge achievement for the millions struggling with a depressed credit score simply because they became ill or had an accident. ” added Sesso.
“We have known for years that medical debt does not predict credit defaults, nor does it accurately predict a person’s desire and willingness to repay loans. The CFPB agrees,” said Patricia Kelmar, director of health campaigns at the consumer protection nonprofit Public Interest Research Group.
“These newly proposed rules are an important step toward implementing a fair credit system that does not penalize people for life events they cannot control, such as becoming sick or injured.”
This story originally appeared on thehill.com read the full story
