Biden Admin Announces Plan to Ban Medical Debt From Hurting Credit Scores

Vice President Kamala Harris speaks during a conversation with U.S. actor John Leguizamo, not pictured, during the Congressional Hispanic Caucus Institute Leadership Conference at the Walter E. Washington Convention Center in Washington on Sept. 20, 2023. Brendan Smialowski/AFP via Getty Images

The Biden administration on Thursday announced plans to bar medical debt from negatively impacting the credit scores of millions of Americans.

Vice President Kamala Harris outlined the proposal, telling reporters that unpaid medical debt is held by more than 100 million Americans, contending that it has “harmed people’s credit scores.”

Ms. Harris announced the proposal alongside Rohit Chopra, head of the Consumer Financial Protection Bureau (CFPB), which is tasked with developing the new regulations.

“No one in our nation should have to go into debt just to get the quality health care that they need,” said Ms. Harris, who noted that this belief is also held by President Joe Biden.

The proposed regulations, if enacted, would mark one of the most significant federal actions taken to address the issue of medical debt.

The CFPB’s proposed rule would bar medical debts and collection data from being included in consumer reports used for credit decisions by creditors, and creditors won’t be able to use medical debt when assessing people for loans.

However, under the proposed rule, creditors would still have access to medical bill information for purposes such as confirming the necessity of medical forbearances or assessing loan applications for medical expenses.

“Many of the debts that people have accrued are due to medical emergencies,” Ms. Harris said. “We know credit scores determine whether a person can have economic health and well-being, much less the ability to grow their wealth.”

These measures, Ms. Harris contended, will significantly improve the credit scores of millions of Americans, opening up opportunities for financial advancement.

“For example,” she added, “more people will qualify for a car loan. Instead of taking three buses to work, they can drive themselves. More working people will qualify for a home mortgage from a local bank instead of continuing to pay rent or resorting to a predatory lender.”

“That home, in turn, will help them to pass on intergenerational wealth,” she continued. “And it will be easier for entrepreneurs to get a loan and open a small business, which we know benefits the economy of entire communities.”

The move to curtail credit reporting and debt collection by hospitals and other medical providers is likely to encounter opposition from industry stakeholders.

The development of the new rules may require some time, as administration officials have suggested that they will not be finalized until next year.

Around 20 percent of Americans acknowledged having medical debt, equating to roughly 66 million people, according to a CFPB report from 2022.

The CFPB’s earlier analysis found that medical billing data in credit reports is less reliable for predicting future repayment compared to traditional credit obligations. This is due to common errors and inaccuracies, further compounded by issues like insurance disputes and complex billing practices.

“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,” said Ms. Chopra. “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.”

Additionally, the CFPB, created in response to the 2008 financial crisis, faces challenges, including potential threats to its future posed by a Supreme Court case that questions federal regulatory powers.

The CFPB points out that the Fair Credit Reporting Act restricts creditors’ utilization of medical data for credit decisions and sets boundaries on the incorporation of medical information in credit reports.

Apart from medical debt, Americans, mostly between the ages of 18 and 39, are also grappling with credit card debt.

Rising living costs are pushing more Americans to rely on credit cards, leading to a historic milestone with U.S. credit card debt recently surpassing $1 trillion.

Increased credit card use often signals financial challenges like delayed bill payments.

Surprisingly, many Americans avoid discussing their credit card struggles, and a Bankrate survey found that 15 percent overspend without their partner’s approval, while 9 percent have undisclosed credit card debt. Delinquency rates are rising, with 43 percent making only minimum monthly payments.