Biden Proposes Ban on Medical Debt From Credit Reports: Here’s What That Means for You

A sudden car accident or illness can quickly lead to thousands of dollars of medical debt. The hard work you’ve done throughout your life to build a good credit score could just go out the window.

A new Biden Administration proposal could ban medical bills from credit reports, which in turn could mean they don’t play a role in your credit score calculations. You will still need to pay down debt from those providers, but it would not directly impact your score.

Here’s what you need to know about the proposed change that stands a chance of helping millions of Americans.

Data from the Consumer Financial Protection Bureau (CFPB) found that 15 million Americans have some level of medical debt on their credit reports. That’s despite changes that were put in place by the three credit reporting bureaus that are no longer counting that debt.

That accounts for $88 billion in medical debt on American credit reports as of March 2022.

After a study came out in 2022 detailing the incredible amount of medical debt impacting credit reports, TransUnion, Equifax, and Experian took steps to change that, stating they would no longer report some types of medical bills on credit reports that were in collections.

They stated that they would increase the length of time before medical bills in collections are added to credit reports by one year (up from 180 days) and would remove debts paid off. They also stated they would remove any bills under $500.

Since the actions taken by the credit bureaus have not relieved Americans of the financial impact of medical bills, the CFPB is considering a rule that would remove all medical bills from most consumer credit reports.

According to CFPB director Rohit Chopra, the practice of credit reporting is a weapon that collection agencies use to force people into making payment on their bills, even those they do not owe.

One of the key reasons for this move is that, from the agency’s research, medical debt is not a reliable predictor of whether or not a consumer will be a risk for a lender.

Data from the CFPB actually shows that medical debt makes it harder for lenders to accurately assess a consumer’s ability to repay their loan and unfairly penalizes them when it comes to underlying decision-making.

The bottom line is that having medical debt doesn’t make you any less likely to pay your credit card or other loans.

One component of the rule is the elimination of special medical debt exceptions, which ultimately allow all lenders to use medical debt to make credit eligibility decisions. This closes the loophole many collection agencies use to pressure consumers.

They could still consider medical debt information related to disability income or benefits and any information relevant to a prospective loan, only under certain circumstances.

To further emphasize and protect consumer credit reports, the rule also proposes to prohibit credit reporting agencies from including medical debt on credit reports when they should not receive it.

That means that if a lender pulls a credit report for a consumer for a car loan, they do not have access to any medical debt information provided on the consumer’s credit report. There’s a block in place that prevents unnecessary medical bill information from being sent to that creditor.

The new rule will also ban collections activities that could lead a lender to repossess medical devices if a debtor cannot pay. It also forbids medical devices to be used as collateral for a loan.

That includes prosthetic limbs, wheelchairs, or other durable medical goods needed.

The CFPB believes that removing most medical debt from credit reports will drastically increase consumer credit scores for those with such debt. That could positively impact two in every five Americans.

They also note that this could lead to an estimated 22,000 more people qualifying for mortgages each year, which directly impacts a person’s financial stability for years to come.

Medical bills may not always be accurate, and resolving a disputed bill with the billing department may take months. When this happens, the debt often winds up on the consumer’s credit report.

The CFPB says that disputes between patients and billing departments are among the most common complaints the agency receives every year. This new rule would keep disputed medical debt from credit reports for a full year.

There have been long-standing rules in place about debt collection practices and medical debt, but this new rule puts more pressure on collection agencies to do what’s right.

It bans the medical debt collection agencies from threatening people with collections activities after attempting to dispute medical debts. These unlawful collection misrepresentations often push people into paying what they may not owe.

If you're trying to find ways to supplement your income to pay down your medical debt, you may be able to take a deep breath if this rule goes into law.

The rule would not eliminate your debt but may give you more time to work out a better payment plan with the provider and dispute charges you do not believe are accurate.