In a significant regulatory move, medical debt will no longer appear on consumer credit reports in the United States, a change announced by the White House on January 7. Initiated by the Consumer Financial Protection Bureau (CFPB), the finalized rule aims to erase $49 billion in medical debt from the credit histories of over 15 million Americans. This decision seeks to address the financial challenges faced by individuals burdened with medical expenses and improve access to credit for essential needs like housing and transportation.
How will this rule impact lending practices?
Lenders will no longer be permitted to factor medical debt into decisions for loans, such as mortgages or car financing. According to the CFPB, the regulation is expected to increase the average credit scores of affected individuals by 20 points and could result in 22,000 additional mortgage approvals annually. Vice President Kamala Harris emphasized the importance of this shift, stating,
“No one should be denied economic opportunity because they got sick or experienced a medical emergency.”
What data supports this decision?
CFPB studies highlight that medical bills are unreliable indicators of a person’s ability to repay loans, as they are often inaccurate or confusing. A 2022 report from the bureau estimated that medical debt accounted for $88 billion across consumer credit reports. While credit reporting agencies previously stopped including certain types of medical debt, such as paid bills or amounts under $500, $49 billion in outstanding medical debt remains on reports. This rule aims to remove these discrepancies entirely.
This development is part of a broader effort to alleviate financial strain caused by healthcare costs. Several state and local governments have already eliminated $1 billion in medical debt, with projections to reach $7 billion by 2026. Unexpected healthcare expenses remain a significant financial burden, costing consumers an average of $6,200 per event, according to PYMNTS research. Those with limited credit access are disproportionately affected, often resorting to high-interest borrowing to cover such emergencies.
A closer look at prior regulations reveals that although voluntary changes by credit agencies reduced the impact of small-dollar and recently paid medical debts, these measures fell short of fully addressing the systemic issue. The finalized CFPB rule now aims for a comprehensive solution by entirely removing medical debt from credit reports.
This regulatory shift underscores a growing recognition of the financial vulnerabilities created by medical expenses. By eliminating medical debt from credit considerations, the policy could not only ease the immediate financial burden on millions but also reshape how lenders evaluate creditworthiness. While the move is welcomed by many, ongoing challenges such as access to affordable healthcare and financial planning for emergencies remain critical issues.
