Medical debt banned from credit reports by new Biden administration rule

Unpaid medical bills will soon be removed from credit reports, a significant change announced by the Biden administration that aims to improve access to loans for millions of Americans. According to the Consumer Financial Protection Bureau (CFPB), this rule will eliminate $49 billion in medical debt from the credit reports of over 15 million individuals, allowing lenders to disregard these debts when assessing loan applications.

The removal of such debts is expected to lead to an average increase of 20 points in credit scores, potentially resulting in an additional 22,000 mortgage approvals each year. Vice President Kamala Harris emphasized the transformative impact of this rule, stating it would facilitate easier access to car loans, home loans, and small-business loans, ultimately benefiting many families across the country.

Harris asserted that no individual should face economic hardship simply because they experienced a medical emergency, highlighting the administration's commitment to fostering financial stability and opportunities for all Americans. This initiative is seen as a critical step toward alleviating the burden of medical debt, which has long hindered people's ability to secure loans and build wealth.

This announcement, however, comes amid political tensions, with some Republican lawmakers calling for the Biden administration to halt the issuance of new rules, especially with the impending presidency of Donald Trump. This scenario raises questions about the future enforcement of the new rule and whether it may face challenges from congressional allies of Trump.

Additionally, the administration revealed that local and state governments have leveraged a pandemic-era aid package to forgive over $1 billion in medical debt for more than 700,000 Americans. The CFPB's rule reflects an understanding that medical debt is not a reliable indicator of a borrower’s capacity to repay loans, a viewpoint echoed by the three major credit reporting agencies, which have also begun removing smaller medical debts from credit reports.