Medical Debt to be Excluded from all US Credit Reports
TL/DR –
The Consumer Financial Protection Bureau (CFPB) has finalized a rule that will remove unpaid medical debt from Americans’ credit reports, erasing an estimated $49 billion in unpaid medical bills for approximately 15 million people and potentially boosting credit scores by an average of 20 points. The rule, set to take effect in March, could result in about 22,000 additional mortgage approvals each year and will prohibit lenders from using medical information in lending decisions as well as prevent debt collectors from using the credit reporting system to coerce consumers into paying bills they may not owe. Despite these potential benefits, the rule could face legal challenges from debt collection groups who argue that it diminishes the consequences of not paying bills, thereby reducing access to credit and health care for those most in need.
A new federal rule is set to erase about $49 billion in unpaid medical bills from the credit reports of approximately 15 million Americans, potentially boosting consumer credit scores by an average of 20 points, as per the Consumer Financial Protection Bureau (CFPB).
The recent rule, which prevents unpaid medical debt from appearing on Americans’ credit reports, will facilitate easier access to mortgages, car loans, and small business loans for millions of people.
Vice President Kamala Harris announced on Tuesday that the CFPB has completed a rule excluding medical debt from consumer credit reports. This rule is expected to lead to the approval of approximately 22,000 additional affordable mortgages every year.
Also, lenders will be prohibited from considering medical information in their lending decisions and debt collectors will be stopped from utilizing the credit reporting system to force consumers into paying unowed bills. The rule will additionally strengthen privacy protections for consumers.
The bureau’s research suggests that medical debts offer little predictive value for lenders about borrowers’ ability to repay other debts. Consumers also frequently report receiving inaccurate bill totals. “People who get sick shouldn’t have their financial future upended,” stated CFPB Director Rohit Chopra.
Medical debt is presently the biggest source of debt in collections in the U.S. A report by KFF, a nonprofit health policy research and news organization, revealed that 20 million Americans owe a collective $220 billion in medical debt.
Medical companies are increasingly acquiring private practices and smaller pharmacies, thus limiting choices for patients and raising costs. Hospital groups also frequently issue errant bills that patients are unaware they can contest, and add surprise fees that patients can’t anticipate.
Research suggests that hospital consolidation is also one of the leading factors in why health care prices have risen in recent years, exacerbating the country’s medical debt problem.
A recent report found that health care systems are outsourcing financial work to private equity companies that have consolidated debt collectors, claims processing, and billing into one-stop-shopping services, enabling aggressive debt collection.
Debt collection groups such as the Association of Credit and Collection Professionals oppose the rule and could challenge it. They argue that removing medical debt from credit reports diminishes consequences for non-payment, thus reducing access to credit and health care for those most in need.
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