Unpaid medical bills would be banned from being included on Americans’ credit reports under a new rule the Consumer Financial Protection Bureau announced that it had finalized on Tuesday, the latest step in a last-minute dash by the agency to wrap up its agenda before the final whistle blows on the Biden administration.
The regulation has been a major priority for both CFPB Director Rohit Chopra and Vice President Kamala Harris, who at a rollout event when the policy was first proposed this summer. The CFPB estimates that the restrictions will immediately benefit roughly 15 million Americans with credit reports currently tarnished by medical debt, who could see their scores rise by an average of 20 points.
“People who get sick shouldn’t have their financial future upended,” Chopra said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
The major credit reporting agencies have already agreed in recent years to significantly limit the use of doctor and hospital bills when calculating consumers’ credit scores by excluding debts that are less than one year old or under $500. As a result, the share of adults with unpaid medical debt on their credit report fell from around 16% in 2019 to 5% in 2023, .
, , and have passed their own laws barring medical debts from credit reports in the past year, joining Minnesota. A handful of states also have .
But imposing a blanket national ban would still be a major boon to consumers, Christine Chen Zinner, chief policy counsel at Americans for Financial Reform, told Yahoo Finance. If it’s implemented, the rule would make it easier for Americans to dispute unfair or incorrect hospital bills by taking away the threat that their credit score could be harmed if the debt is sent to collections.
“If you have a medical debt over $500 on your credit report, that’s going to be a big hit,” she said. “So for those 15 million Americans, it’s a big deal.”
Financial industry groups have pushed back on the CFPB’s rule since it was first proposed, arguing that it will hurt the ability of banks to judge how risky potential borrowers are.
“If lenders are not able to consider medical debts in credit underwriting, consumer delinquencies and defaults will increase, impacting banks’ safety and soundness and consumers’ credit access,” the American Bankers Association said in a comment on the rule it . “If lenders know that credit scores have increased, but believe that risk has not decreased, they will simply offset the increase by further tightening their lending standards.”