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Biden Takes Steps to Remove Medical Debt From Credit Reports

If finalized, new proposed rules would eliminate medical debt from credit reports and put an end to coercive debt collection processes.

About 20% of American households in the United States have medical debt on their credit reports, equaling an estimated $88 billion in healthcare-related debt. This debt may make it challenging for people to recover financially after a health crisis because creditors often use credit score data when assessing credit card and loan applications.

Still, medical debt on credit reports can be inaccurate due to complex medical billing procedures and health insurance payment disputes. Moreover, debt collection agencies may pressure people to pay overdue bills that they may not owe.

To help alleviate this burden, the Consumer Financial Protection Bureau (CFPB), under the direction of the Biden administration, announced on September 21 that it will begin the process of making new rules to eliminate medical bills from credit reports.

Although companies like TransUnion, Equifax, and Experian already voluntarily limit some medical debt on credit score reports, the new proposed rules would make it mandatory and include all medical debt.

In the announcement, the agency outlined several proposals under consideration that, if finalized, would:

  • Remove medical debt on credit reports and prohibit consumer reporting agencies from including healthcare debts and collection data that creditors may use to make underwriting decisions.
  • Prohibit creditors from using medical debt collection information when assessing a person's credit applications.
  • Halt intimidating collection practices by ensuring collectors can no longer use unpaid medical bills on credit reports to pressure consumers to pay debts that may be questionable.

However, the proposed rules would not impact creditors' ability to use medical bill information for other purposes, such as evaluating applications for medical service-related loans.

The CFPB says these new rules could help American families by allowing them to recover financially from health crises, halt debt collectors from pressuring people into paying for medical bills they may not owe, and ensure that creditors cannot use inaccurate data when reviewing loan applications.

In a news release, CFPB Director Rohit Chopra said, "Research shows that medical bills have little predictive value in credit decisions, yet tens of millions of American households are dealing with medical debt on their credit reports. When someone gets sick, they should be able to focus on getting better, rather than fighting debt collectors trying to extort them into paying bills they may not even owe."

Prior to the September announcement, the CFPB held a public hearing in July to hear what consumers had to say about subpar medical billing processes and coercive credit reporting they've experienced. In addition, the agency says it continues to receive and review complaints from American consumers about credit reporting and illegal debt collection practices.

Moreover, the CFPB has also partnered with the U.S. Department of Health and Human Services (HHS) and the U.S. Department of the Treasury to review data from consumers about medical billing procedures, medical credit cards, and installment loans.

CFPB officials expect to finalize the new rules regarding medical debt on credit reports sometime in 2024.

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