New Rule to Ban Unpaid Medical Bills from Credit Reports
In a major victory for consumers, the Consumer Financial Protection Bureau (CFPB) has finalized a rule to prohibit unpaid medical bills from being included on Americans’ credit reports. This move is expected to benefit approximately 15 million individuals whose credit scores are currently affected by medical debt.
A Long-Awaited Relief
CFPB Director Rohit Chopra and Vice President Kamala Harris have been strong advocates for this regulation, which was first proposed earlier this year. According to Chopra, “People who get sick shouldn’t have their financial future upended.” The CFPB estimates that the restrictions will lead to an average credit score increase of 20 points for those affected.
Credit Reporting Agencies Already On Board
In recent years, major credit reporting agencies have voluntarily limited the use of medical debt in credit score calculations, excluding debts under $500 or less than one year old. As a result, the percentage of adults with unpaid medical debt on their credit reports has decreased from 16% in 2019 to 5% in 2023, according to the Urban Institute.
State-Level Efforts
Several states, including California, New Jersey, Rhode Island, and Minnesota, have enacted laws banning medical debts from credit reports. While these efforts are commendable, a national ban would provide a more comprehensive solution for consumers.
Disputing Unfair Bills Made Easier
The new rule would empower Americans to dispute unfair or incorrect hospital bills without fear of damaging their credit scores. Christine Chen Zinner, chief policy counsel at Americans for Financial Reform, notes that this change would be particularly significant for the 15 million individuals affected.
Industry Pushback
Financial industry groups have expressed concerns that the rule would hinder banks’ ability to assess borrower risk. However, the CFPB argues that medical debt is a poor predictor of creditworthiness, citing a 2014 study that found credit bureaus “overpenalized” Americans for having medical bills in collections.
Uncertainty Ahead
The regulation’s fate remains uncertain, as the financial industry may challenge it in court, and Republicans in Washington could attempt to repeal it using the Congressional Review Act. Despite these challenges, the CFPB appears committed to finalizing regulations that benefit consumers.
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