In a move aimed at providing relief to millions of Americans burdened by medical debt, the Biden administration is proposing sweeping regulations that would prohibit the inclusion of such debt on credit reports and its consideration in lending decisions. The proposed rules, set to be announced on Tuesday by Vice President Kamala Harris and Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, could have far-reaching implications for the financial well-being of households across the nation.
At the heart of the matter is the CFPB's assertion that medical debt is not an accurate predictor of an individual's ability to repay other types of loans. "Our research shows that medical bills on your credit report aren't even predictive of whether you'll repay another type of loan. That means people's credit scores are being unjustly and inappropriately harmed by this practice," Chopra told ABC News.
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The regulatory agency estimates that the new rule would enable approximately 22,000 more individuals to secure mortgage approvals annually. Currently, around 15 million Americans collectively owe a staggering $49 billion in outstanding medical debt that appears on their credit reports, according to CFPB data.
The impact of medical debt on credit scores has been particularly severe for low-income communities, residents of the southern United States, and Black and Hispanic households. These groups have not only faced a disproportionate burden of medical debt but have also experienced higher dollar amounts owed and a greater likelihood of having such debt in collections.
While major credit reporting companies like Equifax, Experian, and TransUnion have already taken steps to remove medical bills from their scoring processes, the CFPB's proposed rule would make it a universal requirement across the industry. This move aims to level the playing field and ensure that individuals are not unfairly penalized when seeking access to credit for mortgages, credit cards, and other types of loans.
However, the debt collection industry has raised concerns about potential unintended consequences. The Association of Credit and Collection Professionals (ACA) has warned that the proposed rule could incentivize individuals to stop paying their medical bills if there is no impact on their credit scores. ACA CEO Scott Purcell cautioned that this could lead to negative outcomes, such as healthcare providers refusing to extend credit or raising prices to compensate for non-payment.
Addressing these concerns, Chopra emphasized that individuals would still face penalties and potential legal action for unpaid medical bills, dismissing the idea of widespread non-payment. "Those individuals will still be subject to collection actions, lawsuits and more. There are plenty of ways that people get penalized for not paying their bills. I just don't want to see the credit reporting system be weaponized against people who already paid them," he told ABC News.
As the Biden administration moves forward with this proposal, it seeks to strike a balance between providing relief to individuals burdened by medical debt and ensuring that healthcare providers and lenders are not unduly impacted. The ultimate goal is to create a more equitable system that does not unfairly penalize individuals for circumstances often beyond their control.