Federal consumer agency bans unpaid medical bills from credit reports

Unpaid medical bills will no longer appear on credit reports, where they can block people from mortgages, car loans or small business loans, according to a final rule announced Tuesday by the Biden administration.

The Consumer Financial Protection Bureau rule will remove $49 billion in medical debt from the credit reports of more than 15 million Americans, according to the bureau, which means lenders will no longer be able to take that into consideration when deciding to issue a loan.

The change is estimated to raise the credit scores by an average of 20 points and could lead to 22,000 additional mortgages being approved every year, according to the bureau. Vice President Kamala Harris said in a statement announcing the rule that it would be “lifechanging” for millions of families.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” she said.

Harris also announced that states and local governments have used a sweeping 2021 pandemic-era aid package to eliminate more than $1 billion in medical debt for more than 700,000 Americans.

The administration announced plans for the rule in fall 2023.

The CFPB said that medical debt is a poor predictor of an individual’s ability to repay a loan. Experian, Equifax and TransUnion, the three national credit reporting agencies, said last year that they were removing medical collections debt under $500 from U.S. consumer credit reports.

The new rule from the Biden administration is set to take on the outstanding bills appearing on credit reports.