Biden rule to remove nearly $49B in medical debt from credit reports

Texans, along with millions of Americans, may soon see a break on their credit reports. On Tuesday, the Consumer Financial Protection Bureau finalized a rule removing medical debt from consumer credit reports.

The Biden administration announced that crippling medical debt would no longer appear on credit reports, which can block people from getting mortgage loans, car loans, and small business loans.

In a statement, Vice President Kamala Harris said the final rule would free up billions of dollars of medical debt for Americans.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Harris said.

Here is how eliminating medical debt can help improve credit scores.

VP Harris: ‘Medical debt is no longer included in your credit score’

According to the CFPB, the adjustment is projected to boost credit scores by an average of 20 points, potentially resulting in 22,000 additional mortgage approvals annually.

The CFPB said the new rule will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans.

CFPB Director Rohit Chopra said medical debt should not hold back people from prospering. “People who get sick shouldn’t have their financial future upended,” Chopra said.

According to a White House press release, medical debt is the largest source of debt in collections for Americans. Vice President Harris said the burden of medical debt has ceased.

“Today, we are building on this meaningful work by announcing an unprecedented final rule that will make it so medical debt is no longer included in your credit score,” Harris said. “This will be lifechanging for millions of families, making it easier for them to be approved for a car loan, a home loan, or a small-business loan.”

The final rule is set to take effect in March, though legal challenges could push it back. According to ABC News, “Debt collection industry groups, such as the Association of Credit and Collection Professionals, have opposed the change, arguing that it would lead to fewer consequences for unpaid bills, ultimately decreasing access to credit and healthcare for those in need.”

Who are the three national credit reporting agencies?

Experian, Equifax and TransUnion are the three major credit reporting agencies in America.

In 2023, the three national credit reporting agencies announced that they were removing medical collections debt under $500 from U.S. consumer credit reports.