Hundreds of thousands of Americans may soon see their credit scores increase as recent federal policies bar lenders and credit reporting firms from holding one’s unpaid medical bills against them.
The Consumer Financial Protection Bureau (CFPB) finalized a rule on Tuesday that bans medical information from getting used in lending and credit reporting decisions. The CFPB estimates that 15 million Americans could see their credit scores rise by a mean of 20 points once the policy takes effect, which is predicted to be in mid-March.
“Individuals who get sick shouldn’t have their financial future upended,” said CFPB Director Rohit Chopra in a news release about the brand new rule.
In April 2023, the massive three credit bureaus — Equifax, Experian and TransUnion — already removed medical debts under $500 from credit reports, in a self-regulatory move that they are saying worn out 70% of the medical bills that were plaguing people’s credit.
Still, the CFPB found that about $50 billion of medical debt remained on the credit reports of thousands and thousands of Americans afterward.
Credit scores and the reports they’re based on are commonly used as a way for lenders, landlords and employers to quickly check whether an individual is prone to repay their debts. The watchdog agency says that medical debt is a very bad predictor of individuals’s ability to repay a loan since the debt isn’t taken on voluntarily. Medical debt, the agency says, can have lingering and debilitating effects that keep Americans from the loans, housing and even jobs they should survive.
A 2023 report from the health policy nonprofit Kaiser Family Foundation found that medical debt was a significant contributing factor for hundreds of Denver residents facing homelessness or housing instability. Last 12 months, Colorado became the primary state to bar medical debt from blemishing residents’ credit reports. California and Latest York quickly followed suit.
Now, the whole U.S. appears to be following in those states’ footsteps — however the policy could also be in jeopardy on condition that the CFPB announced the brand new federal rule just weeks before President Joe Biden is ready to depart office.
Will Trump keep the medical debt rule in place?
Though the CFPB finalized the rule on Tuesday, it isn’t expected to take effect until 60 days after they’re published within the Federal Register — meaning a while in March.
At that time, Biden will likely be out of office, and President-elect Donald Trump will likely be in power. This offers Republicans and the Trump administration the power to reverse the CFPB’s rule before it’s enacted.
The crippling consequences of medical debt are widely felt, nevertheless, and medical debt is looked upon unfavorably across the political spectrum. In response to a 2023 survey from the Pew Research Center, 64% of Americans said the affordability of health care was a “very big problem” within the country today, including 54% of Republican-leaning respondents and 73% of Democrat-leaning respondents.
That said, the rule has already sparked some backlash. While the policies were undergoing the official rulemaking process last 12 months, a gaggle of Republican lawmakers wrote to the CFPB to specific “serious concerns” about omitting medical debt from credit reports. They said doing so would offer an incomplete picture of somebody’s financial situation, harming financial institutions and ultimately consumers.
Banking trade groups similarly wrote to Chopra and the CFPB voicing their disapproval of the rule.
Though the three big credit bureaus voluntarily removed medical debt under $500 from credit reports last 12 months, a handful of industry leaders got here out Tuesday against the CFPB’s recent rule to remove all such debts from credit reports.
The CFPB “lacks the authority to dictate what can and can’t be included on credit reports,” Dan Smith, CEO of the Consumer Data Industry Association, said in an announcement shared with Money. (The CDIA is an industry trade group that represents the massive three credit bureaus in addition to many other area of interest credit reporting agencies.)
Some advisors in Trump’s orbit will not be fans of the CFPB. Multibillionaire Elon Musk is chief amongst them. Tasked with overseeing the Department of Government Efficiency, or DOGE, Musk recently said he desires to “delete [the] CFPB.”
DOGE isn’t an official government agency, and its recommendations to Trump aren’t binding. Also, any creation (or deletion) of presidency agencies or departments require Congressional approval. Even so, Musk’s sentiment could provide a clue as to how Trump will view the CFPB in his second term.
Ultimately, it is not clear how Trump will handle the brand new medical debt rule, and his transition team didn’t reply to Money’s request for comment.
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