Imagine a world where there is no chance that a trip to the emergency room could loom over your credit score for years to come. Thanks to groundbreaking new legislation, currently under review, the ghosts of past medical bills may no longer haunt people. If the legislation is implemented, healthcare debt will be banned from credit reports, offering a fresh start for 15 million1 Americans currently burdened by unexpected medical costs. This change would make it easier for those with medical arrears to secure loans, buy homes, and achieve their financial dreams.
In addition to barring credit reporting agencies from listing medical debt on credit reports, lenders would be prohibited from using this information in their lending decisions. The new regulation also includes enhanced privacy protections, ensuring that consumers' medical information is kept confidential. This step is crucial to preventing debt collectors from using the credit reporting system to coerce payments.2
The Consumer Federal Protection Bureau (CFPB) was responsible for the ruling after finding that medical debts do not predict a borrower’s ability to repay other debts. Furthermore, consumers often indicate that healthcare organizations bill them incorrectly or expect them to pay for treatment that insurance or financial assistance programs should have covered.
“People who get sick shouldn’t have their financial future upended,” said former CFPB Director Rohit Chopra. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to compel people to pay medical bills they may not even owe.”3 Since low credit scores can make it more challenging to secure loans, the legislation will lead to the approval of about 22,000 affordable mortgages every year that lenders would previously have denied. Americans with medical debt could see their credit scores increase by an average of 20 points, making it less challenging to land a job or even rent a house.3
Of course, not everyone is thrilled about the new rules. The debt collection industry argues against the changes. On the other hand, potential loopholes may exist that bad actors could exploit, and consumer would need to be educated about their new rights and protections.
Finally, at the time of this article's publication, the implementation of the legislation, originally scheduled to take effect this March, has been temporarily halted for complete review. Possible significant changes to the Consumer Financial Protection Bureau and the results of the review may affect roll out of the regulation, so watch the national news for updates about when and how the legislation will take effect.
Despite these challenges, the new regulation marks a significant step forward in consumer protection. It offers a lifeline to those struggling with medical arrears, and a path to financial stability and peace of mind.
Sources
1Medical debt banned from credit reports by new Biden administration rule - CBS News
2Biden-Harris administration backs action to cut medical debt | The Wisconsin Independent. https://wisconsinindependent.com/health-care/biden-harris-administration-backs-action-to-cut-medical-debt-3/
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