Medical debt will no longer be allowed to be a factor when lenders consider applicants for loans, according to a new rule finalized Tuesday by the Consumer Financial Protection Bureau, which will also remove tens of billions of dollars worth of medical bills from the credit reports of about 15 million Americans.
The rule could benefit impacted Americans' credit scores by an average of 20 points. (Photo by Joe ... [+]
The Bureau’s finalization of the rule will remove an estimated $49 billion in medical bills from about 15 million Americans’ credit reports, just over six months after Vice President Kamala Harris introduced the proposed rule change in June, 2024.
The rule bans creditors from using medical information in lending decisions and stops consumer reporting agencies from including medical debt data on credit reports and credit scores sent to lenders.
Under the rule, lenders will still be able to consider medical information when verifying medical-based forebearances, verify medical expenses that need to be covered by a loan and consider benefits as income when underwriting loans.
The CFPB’s rule follows changes by credit reporting companies Equifax, Experian, and TransUnion made in 2023, when the companies announced they removed medical debt under $500 from Americans’ credit reports—a move they claimed removed almost 70% of total medical collection debt tradelines provided to the Nationwide Credit Reporting Agencies.
The rule goes into effect 60 days after publication in the Federal Register, though the CFPB has not made clear when it exactly intends to file the rule with the register.
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- That is the average increase in credit score Americans with medical debt on their credit reports could see once the rule goes into effect.
The bureau’s decision comes after its internal research found medical bills on Americans’ credit reports are a “poor predictor of whether they will repay a loan.” The research also notes medical bills on credit reports contribute “to thousands of denied applications on mortgages that consumers would be able to repay.” The CFPB expects about 22,000 additional, affordable mortgages will be approved every year with the new rule in effect. Equifax, Experian, and TransUnion changed their medical bill policies in 2023 after research from CFPB showed that medical collections tradelines appeared on 43 million U.S. credit reports, with 58% of bills in collections and on American credit records being medical bills.
90% Of Americans With Medical Debt On Their Credit Report Face Setbacks; New Rules May Help (Forbes)