The US Consumer Financial Protection Bureau (CFPB) has finalized a new rule aimed at removing medical debt from credit reports, potentially benefiting 15 million Americans. The rule, which takes effect 60 days after publication in the federal register, prohibits lenders from using medical information to make lending decisions.
According to CFPB Director Rohit Chopra, having medical debt on a credit report is not a reliable indicator of whether a borrower will repay a loan. He stated that the new rule aims to “close a special carve-out” that has allowed debt collectors to abuse the credit reporting system.
The rule could lead to an increase in approved mortgages and a 20-point average rise in credit scores for Americans with medical debt on their reports. It is estimated to remove $49 billion in medical bills from credit reports.
However, Republicans have expressed concerns about the rule, arguing that it would harm consumers by increasing the cost and decreasing the availability of credit. Banking trade groups have also criticized the proposal, stating that it could lead to consumers being extended more credit than they can afford, resulting in default.
Despite these criticisms, consumer advocacy groups praise the rule, saying it will help those saddled with medical debt. Christine Chen Zinner from Americans for Financial Reform stated that the rule is unfair to individuals who have experienced unplanned health events and are now punished with lower credit scores and more expensive loans.
The future of the rule remains uncertain, as President-elect Donald J. Trump’s return to office could lead to its undoing. Nevertheless, lawmakers may face difficulties in reversing the protections offered by this new rule, given their negative reception from the general public.
Source: https://www.nytimes.com/2025/01/07/us/politics/biden-medical-debt-credit-report.html