Biden Finalizes Rule to End Medical Debt on Credit Reports

Biden Administration Finalizes Rule to End Medical Debt on Credit Reports

By James Seidel, Investigative Reporter

COLUMBIA, S.C., — Americans burdened by medical debt will soon see relief as the Biden administration finalizes a rule to end the inclusion of unpaid medical bills on credit reports. The rule, set to be published Tuesday, will also prohibit lenders from using certain medical information in loan decisions. It is expected to remove an estimated $49 billion in medical debt from the credit reports of about 15 million people, according to the Consumer Financial Protection Bureau (CFPB).

“People who get sick shouldn’t have their financial future upended,” said CFPB Director Rohit Chopra 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 rule will take effect 60 days after it is published in the Federal Register, though Republican lawmakers could attempt to overturn it. Some House Republicans expressed concerns in August that the rule would weaken credit report accuracy and harm the affordability of credit.

Despite potential pushback, consumer groups hailed the measure as a significant step forward. “This rule will provide relief to millions of people who have unfairly had their credit impacted simply because they got sick,” said Mona Shah, senior director of policy at Community Catalyst.

Medical Debt in South Carolina

South Carolinians, in particular, stand to benefit from this rule change. Approximately 22% of residents in the state have medical debt in collections, making it the second-highest rate in the nation after West Virginia. The median medical debt in collections for South Carolinians is about $787, while the average medical debt per person is around $3,335, ranking South Carolina third nationally.

According to recent data from the Palm Beach County Property Appraiser’s Office, the state’s total medical debt remains difficult to quantify precisely, but these figures highlight the significant financial burden on residents. Many individuals in South Carolina, like millions across the country, struggle with paying off their medical bills, leading to lasting financial stress.

A cancer diagnosis can be devastating to some. Not only affecting their life, and body, but financially. My cancer diagnosis, surgery, and treatments well surpassed one million dollars. I know what an illness can do to a person and their family firsthand.

Eliminating Debt and Enhancing Credit Scores

The new rule is projected to boost credit scores by an average of 20 points for those with medical debt, potentially resulting in the approval of an additional 22,000 mortgages annually. “This will be life-changing for millions of families, making it easier for them to be approved for a car loan, a home loan, or a small-business loan,” said Vice President Kamala Harris.

In addition to removing debt from credit reports, the rule bars lenders from using medical devices such as wheelchairs or prosthetic limbs as collateral and prohibits their repossession if patients cannot repay loans.

Broader Efforts to Address Medical Debt

Helping Americans manage medical debt has been a priority for the Biden administration. In 2022, the administration introduced a four-point plan to protect consumers, which included investigating credit reporting companies and debt collectors. That same year, the three largest credit reporting agencies — Equifax, Experian, and TransUnion — announced they would remove nearly 70% of medical debt from consumer credit reports. They also extended the grace period before unpaid medical debt appears on reports and eliminated reporting of medical debt under $500.

In a related initiative, Vice President Harris revealed that states and local governments have used American Rescue Plan Act funds to erase more than $1 billion in medical debt for over 750,000 Americans. By the end of next year, it is projected that $7 billion in medical debt will be wiped out for nearly 3 million Americans.

North Carolina has implemented a medical debt relief program, with 99 hospitals pledging to eliminate up to $4 billion in unpaid bills for nearly 2 million residents. These hospitals will also adopt policies aimed at preventing future debt accumulation, making them eligible for enhanced Medicaid reimbursements.

As medical debt remains a pervasive issue, especially in states like South Carolina, these reforms offer hope to millions of Americans facing financial hardship due to healthcare costs. “Trouble getting loans makes it more difficult to just get by, much less get ahead,” said Harris. The administration’s efforts are designed to alleviate this burden and provide long-term financial stability for affected families.

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