Medical debt will no longer appear on credit reports for all Americans

This new rule will erase an estimated $49 billion in unpaid medical bills from the credit reports of roughly 15 million Americans, according to the Consumer Financial Protection Bureau. The agency estimates that the new federal rule could help boost consumer credit scores by an average of 20 points. 

Unpaid medical debt will no longer appear on Americans’ credit reports under a newly finalized federal regulation, a move that will make it easier for millions of people to obtain mortgages, car loans, and small business loans.  

Vice President Kamala Harris on Tuesday announced that the Consumer Financial Protection Bureau (CFPB) has finalized a rule that will remove medical debt from consumer credit reports.

This new rule will erase an estimated $49 billion in unpaid medical bills from the credit reports of roughly 15 million Americans, according to the CFPB.

The bureau also estimates that the rule could help boost those consumers’ credit scores by an average of 20 points, which could help them qualify for mortgages and other loans. In fact, the CFPB expects that the rule will lead to the approval of approximately 22,000 additional, affordable mortgages each year.

The rule will also prohibit lenders from using medical information in their lending decisions and prevent debt collectors from using the credit reporting system to coerce consumers into paying bills that they don’t owe. Privacy protections for consumers will also increase under the rule.

In a press release, the CFPB points to its research, which “found that medical debts provide little predictive value to lenders about borrowers’ ability to repay other debts.” 

Research also found that consumers frequently report receiving inaccurate bill totals.

“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a statement. “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.”

This announcement from the CFPB comes after changes made by the three nationwide credit reporting conglomerates: Equifax, Experian, and TransUnion. They announced in 2023 that they would remove certain types of medical debt from credit reports, such as collections under $500. FICO and VantageScore, the two major credit scoring companies, have also decreased the degree to which medical bills impact a consumer’s score in recent years.

Medical debt is currently the largest source of debt in collections in the United States. According to a report released last year by KFF, a nonprofit health policy research, polling, and news organization, 20 million Americans owe a collective $220 billion in medical debt. Medical debt is more likely to affect women, people with disabilities, and Black Americans.

There are a number of reasons why medical debt is such a crisis in the US.

Giant medical companies are increasingly buying private practices and smaller pharmacies, a form of medical franchising that taps the companies into new revenue streams, but limits choices for patients and increases costs. Hospital groups also often issue errant bills that patients don’t know they can contest, or add surprise fees patients have no way of expecting. Additionally, debt collectors play a key role in driving the problem, targeting families with illegal medical debt collection tactics.

Research suggests that hospital consolidation — where health care entities merge or are acquired to come under common ownership, dominating a market and reducing competition — is also one of the leading factors in why health care prices have risen in recent years, worsening the country’s medical debt problem.

A recent report from the Private Equity Stakeholder Project, a watchdog group, also found that health care systems have been increasingly outsourcing financial work to private equity companies that have consolidated debt collectors, claims processing, and billing into sort of “one-stop-shopping services.” This consolidation and scaling of debt collection companies has “enabled aggressive debt collection,” according to the report.

These private equity firms are using financing tools such as medical credit cards and installment loans that come with high interest rates to make money, but consumers are still unable to pay their bills, pushing them further into debt.

The rule is set to take effect in March – but that timeline could be delayed by legal challenges. Debt collection groups such as the Association of Credit and Collection Professionals, for example, oppose the rule and could challenge it. They say that removing medical debt from credit reports “reduces consequences for not paying your bills, which in turn will reduce access to credit and health care for those that need it most.”