Biden administration bans medical debt from credit reports, wipes millions in debt

Key takeaways:

• The rule will prohibit lenders from including medical debt on credit reports and using medical information in lending decisions.
• The rule will also remove $49 billion in medical debt for 15 million Americans.

The Biden administration finalized a rule by the Consumer Financial Protection Bureau that will ban lenders from including medical debt on credit reports.

The rule will also remove around $49 billion in unpaid medical debt for 15 million Americans, raising their credit scores by 20 points and leading to 22,000 additional mortgages annually, according to a White House press release.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Vice President Kamala Harris said in the release. “This will be life changing for millions of families, making it easier for them to be approved for a car loan, a home loan, or a small-business loan. As someone who has spent my entire career fighting to protect consumers and lower medical bills, I know that our historic rule will help more Americans save money, build wealth, and thrive.”

According to 2021 analysis by KFF, 14 million people in the United States owe over $1,000 in medical debt, whereas about 3 million owe medical debt of over $10,000.

The White House noted that medical debt is the largest source of debt in collections and, unlike other types of debt, “it is often the result of unavoidable medical complications and medical bills often contain significant errors, such as inflated or duplicative charges and fees for services never received or already paid.”

Consumer Financial Protection Bureau (CFPB) research from 2022 showed that medical bills made up $88 billion of reported debts on credit reports, while the data also indicated that such bills are commonly “confusing and erroneous” and a poor predictor of a person’s ability to pay a loan, the press release added.

After that research was published, three of the largest credit reporting agencies announced they would remove certain types of medical debt, like collections under $500, from credit reports.

“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a press release from the agency. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”

According to CFPB, lenders will additionally be barred from using certain medical information in making lending decisions under the rule.

They will also be unable to use information on medical devices, like prosthetic arms or wheelchairs, “that could be used to require that the devices serve as collateral for a loan for the purposes of repossession,” the release noted.

Lenders will still be able to use medical information in certain situations, such as verifying medical-based forbearances and medical expenses that a consumer needs a loan to pay.

The rule will go into effect 60 days after it is published in the Federal Register.

References:

• CFPB finalizes rule to remove medical bills from credit reports. Available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-finalizes-rule-to-remove-medical-bills-from-credit-reports/. Published Ja. 7, 2025. Accessed Jan. 7, 2025.
• Fact sheet: Vice President Harris announces final rule removing medical debt from all credit reports. Available at: https://www.whitehouse.gov/briefing-room/statements-releases/2025/01/07/fact-sheet-vice-president-harris-announces-final-rule-removing-medical-debt-from-all-credit-reports/. Published Jan. 7, 2025. Accessed Jan. 7, 2025.
• The burden of medical debt in the United States. Available at: https://www.kff.org/health-costs/issue-brief/the-burden-of-medical-debt-in-the-united-states/. Published Feb. 12, 2024. Accessed Jan. 7, 2025.