On June 11, the Biden administration announced its proposal for new rules aimed at preventing medical debt from impacting credit score reports, which would potentially assist many individuals in qualifying for auto loans or mortgages. The Consumer Financial Protection Bureau (CFPB) unveiled this proposal, intending to prohibit credit reporting companies from sharing medical debts with lenders and preventing lenders from basing their lending decisions on medical information.
The CFPB estimates that the proposed rules would enable approximately 22,000 more people per year to secure safe mortgages, benefiting not only consumers but also lenders by allowing them to improve underwriting through approving a larger number of borrowers for loans they are likely to repay.
The CFPB is seeking to end the senseless practice of weaponizing the credit reporting system to coerce patients into paying medical bills that they do not owe,” stated CFPB Director Rohit Chopra. Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.
The new rule is expected to impact millions of Americans, particularly the 15 million individuals who disproportionately reside in Southern states and low-income communities. Collectively, their outstanding medical bills amount to more than $49 billion. As Chopra noted, “The purpose of the credit reporting system is to assess credit risk, not to coerce people to pay debts they may not owe.
This move comes after Democrat lawmakers urged the CFPB to remove medical debt from consumer credit reports. In March, a group of 10 Democrat Senators penned a joint letter to Mr. Chopra, requesting that he expedite the rulemaking process. These Senators argued that “medical debt does not reflect spending habits or help lenders predict risk; instead, it is evidence of either health issues or a medical emergency. Medical debt places patients at risk of downgraded credit and falling victim to predatory practices.
The Biden administration’s June 11 announcement also coincides with the President’s campaign trail commitments to reduce financial burdens on voters, particularly those from low-income households. In March, the CFPB introduced a rule requiring most banks and credit card issuers to cap late fees at $8, which could save consumers over $10 billion annually by lowering average late fees from $30 to the proposed $8. This announcement underscores the Biden administration’s ongoing efforts to alleviate financial stress for millions of Americans while promoting fairness and accuracy within the credit reporting system.