Biden administration seeks to remove medical debt from Americans’ credit reports

The Biden administration is pushing to prevent medical debt from being considered in most decisions made over whether someone qualifies to rent an apartment, buy a car or take on a mortgage.

The Consumer Financial Protection Bureau said Tuesday it is planning a rule that would remove medical bills from credit reports and prevent lenders from making decisions based on medical information.

The move would remove up to US$49 billion in medical debts from the credit reports of 15 million Americans, according to the bureau. Americans often face medical debt because services are not entirely covered by either private insurance or government health plans.

State and local governments are also using coronavirus stimulus funds to eliminate $7 billion in medical debts held by nearly 3 million Americans, according to the White House.

The proposed rule also would prevent lenders from repossessing medical devices like wheelchairs if people cannot repay a loan.

“No one should be denied access to economic opportunity simply because they experienced a medical emergency,” Vice President Kamala Harris said during a conference call laying out the planned rule.

The proposal would result in an additional 22,000 home loan approvals per year once effective, according to Harris.

The administration announced plans for the rule in September, and a senior administration official said they expect to finalize it early next year.

The CFPB has said that medical debt can be a poor predictor of whether someone is likely to repay a loan. Those expenses often are not planned like a car or home purchase, and patients may have little control over the progress of a serious illness.

CFPB Director Rohit Chopra also noted Tuesday that research shows billing errors frequently appear on credit reports. He said the rule would prevent debt collectors “from using the credit report as a cudgel” to force people to pay bills they may not owe.

The three national credit reporting agencies — Experian, Equifax and TransUnion — said last year that they were removing medical collections debt under $500 from U.S. consumer credit reports.

The CFPB will take comments or feedback on its proposed rule until August 12.

The proposal faces likely push-back from industry and Republican-led states, who have challenged Biden administration economic and environmental policies. A year ago, the U.S. Supreme Court blocked the administration’s plans to cancel $430 billion in student loan debts, upending a key Biden campaign promise.

Patrick McHenry, the Republican chair of the House Financial Services Committee that will hear Chopra’s testimony when she presents the agency’s semiannual report to lawmakers on Thursday, decried Tuesday’s announcement, saying the policy would raise costs and reduce the availability of credit.

“The CFPB’s regulatory overreach will harm the very consumers the agency was created to protect,” McHenry said in a statement.

—With additional files from Reuters