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White House Plans to Ban All Medical Debt From Credit Reports
By Adam Hardy MONEY RESEARCH COLLECTIVE
The Biden administration is also making a broader push to encourage medical debt forgiveness.
The Biden administration is proposing to bar medical debt from credit reports, while also calling for the cancellation of medical debt for millions of Americans.
Vice President Kamala Harris and Director Rohit Chopra of the Consumer Financial Protection Bureau (CFPB) unveiled a new rule proposal on Tuesday, which could increase the credit scores of some Americans by 20 points or more by excluding all medical debts from their credit reports.
“Medical debt on a consumer credit report is just so different than a mortgage, auto loan or credit card,” Chopra said on a call with reporters. “Like a visit to the emergency room, the debt is taken on unexpectedly and in a time of crisis.”
For that reason, the Biden administration argues that medical debt should not be a consideration when lenders are determining whether to issue a loan. “In this way, the credit reporting system is more closely resembling a weapon for debt collectors rather than a tool for lenders to accept someone’s likelihood to repay a loan,” Chopra said.
In March 2022, TransUnion, Experian and Equifax agreed to remove all paid medical debts and unpaid debts of $500 or below from credit reports following pressure from the CFPB. Those changes were implemented in July 2022 and April 2023, respectively.
Still, larger debts plagued the credit of millions of Americans. If the new rule goes into effect, the CFPB estimates it would remove upwards of $49 billion of remaining medical debt from the reports of 15 million Americans.
The proposal is undergoing an official rulemaking process by the CFPB. The agency is accepting public comments on its proposals until August 12 before finalizing a rule. Following that, the rule will be in effect “at some time early next year,” an official estimated.
That said, the rule (in any form) is not guaranteed as it could be challenged in court. So far, the credit reporting industry has been at least somewhat cooperative by removing some medical debts from credit reports without the need of regulation.
However, the Consumer Data Industry Association, a trade group that represents the credit bureaus, said in a statement to Money that “this is a complex issue” and it will need to review the proposal more closely before weighing in.
A call to forgive medical debt
While removing medical debt from credit reports blunts the impact such debt can take on the financial lives of Americans, the people involved are still responsible for paying what’s legally owed.
In a more direct effort to eliminate medical debt entirely, Harris called on states, local governments and health care providers to forgive the medical debt of struggling Americans. She highlighted a variety of local-level initiatives already in effect to cancel $7 billion of medical debt for some 3 million Americans.
Some states like Arizona, Connecticut and New Jersey are using funds from the American Rescue Plan to purchase the medical debt of its residents and forgive it. Local areas such as Cook County, Illinois; Cleveland, Ohio; Orange County, Florida, and a handful of other cities and counties are doing the same.
Biden administration officials said the debt forgiveness initiative is a “voluntary contract” between local governments and health care providers and should not run into any legal problems. While it is not mandatory, Harris rallied other parts of the country to get involved.
“Today, I’m issuing a call to states, cities and hospitals across our nation to join us in forgiving medical debt,” she said.
Already, Harris said $650 million of medical debt has been wiped out and there are plans for another $7 billion to be forgiven by 2026.
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Adam Hardy is Money's lead data journalist. He writes news and feature stories aimed at helping everyday people manage their finances. He joined Money full-time in 2021 but has covered personal finance and economic topics since 2018. Previously, he worked for Forbes Advisor, The Penny Hoarder and Creative Loafing. In addition to those outlets, Adam’s work has been featured in a variety of local, national and international publications, including the Asia Times, Business Insider, Las Vegas Review-Journal, Yahoo! Finance, Nasdaq and several others. Adam graduated with a bachelor’s degree from the University of South Florida, where he studied magazine journalism and sociology. As a first-generation college graduate from a low-income, single-parent household, Adam understands firsthand the financial barriers that plague low-income Americans. His reporting aims to illuminate these issues. Since joining Money, Adam has already written over 300 articles, including a cover story on financial surveillance, a profile of Director Rohit Chopra of the Consumer Financial Protection Bureau and an investigation into flexible spending accounts, which found that workers forfeit billions of dollars annually through the workplace plans. He has also led data analysis on some of Money’s marquee rankings, including Best Places to Live, Best Places to Travel and Best Hospitals. He regularly contributes data reporting for Best Colleges, Best Banks and other lists as well. Adam also holds a multimedia storytelling certificate from Poynter’s News University and a data journalism certificate from the Investigative Reporters and Editors (IRE) at the University of Missouri. In 2017, he received an English teaching certification from the University of Cambridge, which he utilized during his time in Seoul, South Korea. There, he taught students of all ages, from 5 to 65, and worked with North Korean refugees who were resettling in the area. Now, Adam lives in Saint Petersburg, Florida, with his pup Bambi. He is a card-carrying shuffleboard club member.