Unpaid Medical Bills Banned from Appearing on Credit Reports
New Rule Aims to Reduce Financial Burden on Millions of Americans
The Consumer Financial Protection Bureau (CFPB) has announced a final rule that will remove unpaid medical bills from credit reports, where they can block people from obtaining mortgages, car loans, or small business loans. This change is expected to have a significant impact on millions of Americans, raising their credit scores by an average of 20 points and potentially leading to 22,000 additional mortgages being approved every year.
Why Medical Debt is a Poor Predictor of Creditworthiness
The CFPB has determined that medical debt is a poor predictor of an individual’s ability to repay a loan. This is because medical debt can be the result of unforeseen circumstances, such as a sudden illness or injury, rather than a reflection of an individual’s financial responsibility.
Impact on Credit Scores and Loan Approvals
The removal of medical debt from credit reports is expected to have a significant impact on credit scores. According to the CFPB, the change will remove $49 billion in medical debt from the credit reports of more than 15 million Americans. This means that lenders will no longer be able to take medical debt into consideration when deciding to issue a loan.
State and Local Governments Take Action to Eliminate Medical Debt
In addition to the CFPB’s rule, state and local governments have also taken action to eliminate medical debt. According to Vice President Kamala Harris, states and local governments have used a sweeping 2021 pandemic-era aid package to eliminate more than $1 billion in medical debt for more than 700,000 Americans.
Timeline and Implementation
The CFPB announced plans for the rule in fall 2023, and it is expected to take effect soon. Experian, Equifax, and TransUnion, the three national credit reporting agencies, have already removed medical collections debt under $500 from U.S. consumer credit reports.
Conclusion
The removal of unpaid medical bills from credit reports is a significant step towards reducing the financial burden on millions of Americans. By removing medical debt from credit reports, individuals will no longer be penalized for medical expenses that are outside of their control. This change is expected to have a positive impact on credit scores and loan approvals, and will help to promote economic opportunity and stability for millions of Americans.
FAQs
Q: Why is medical debt being removed from credit reports?
A: Medical debt is being removed from credit reports because it is a poor predictor of an individual’s ability to repay a loan. Medical debt can be the result of unforeseen circumstances, such as a sudden illness or injury, rather than a reflection of an individual’s financial responsibility.
Q: How will the removal of medical debt affect credit scores?
A: The removal of medical debt is expected to raise credit scores by an average of 20 points.
Q: Will lenders still be able to consider medical debt when deciding to issue a loan?
A: No, lenders will no longer be able to take medical debt into consideration when deciding to issue a loan.
Q: What is the timeline for implementing the new rule?
A: The CFPB announced plans for the rule in fall 2023, and it is expected to take effect soon.
