The Biden administration is planning to eliminate medical debt from credit reports of millions of Americans. What could this mean for you?

On Tuesday, the Biden administration announced a new decision Proposed rule to erase medical debt From credit reports, it will likely help An estimated 100 million Americans Who are struggling to pay their medical bills. The new rule, proposed by the Consumer Financial Protection Bureau (CFPB), is intended to provide relief to patients who have had difficulty getting approved for loans, renting an apartment, getting a job, and being able to afford daily necessities due to medical debt. . The CFPB is a government agency whose goal is to make financial markets fair for Americans.

“The CFPB seeks to end the foolish practice of using the credit reporting system as a weapon to force patients to pay medical bills they do not owe,” said CFPB Director Rohit Chopra. In a press release. “Medical bills on credit reports are often inaccurate and have little predictive value when it comes to repaying other loans.”

Here’s what the new proposal could mean for you and your wallet.

⚕️ What’s happening?

Prospective proposal for the office An initiative by Experian, Equifax, and TransUnion to advance in 2022. Consumer reporting agencies Eliminate medical debt Charged from credit reports once they are paid and medical debt balances are eliminated Less than $500. The new rule eliminates medical debt from all U.S. credit reports for the rest 15 million Americans With $49 billion in outstanding medical debt collected.

Under the new proposal:

• Consumer reporting companies like Experian, Equifax, and TransUnion will be prohibited from including medical debt and collection information on credit reports. Creditors use that information to make underwriting decisions — a crucial practice in the mortgage process that determines whether a person will get approved for a loan.

• Lenders will be prevented from reclaiming medical devices as collateral for a loan if people are unable to repay the loan.

• Debt collectors will be prevented from forcing payments on inaccurate or false medical bills, an issue plaguing many Americans. He complained to the CFPB. Inaccurate medical bills are often the subject of disputes between patients and billing departments that can last for years.

The CFPB, the Treasury Department, and the Department of Health and Human Services have done so Request for public comment To try to understand “medical credit cards, loans, and other financial products used to pay for health care” and the effects the products may have on patients and the health care system. The rule, if finalized, would likely not take effect until 2025.

Vice President Kamala Harris also called on cities, states and hospitals to forgive debts on Tuesday Press Call to announce actions.

🏥 What does this mean for you?

Millions of Americans who have medical debt in collections, hurting their credit scores, could get a score boost. An average of 20 points Under the new plan when the debts are cleared.

Medical debt is the largest source of debt collections, According to the White House, It represents more than car loans, credit cards and utility bills combined. This type of debt disproportionately affects people Blacks and Hispanics Besides People who live in the south. An estimated 11 million Americans have $2,000 of this debt, and 3 million Americans have medical debt of more than $10,000.

As the CFPB found The appearance of medical debt on a credit report can lead to an inaccurate prediction of whether a person will pay off other types of debt. This can create barriers to accessing auto, home, or small business loans or may make these loans only available at high interest rates.

Under the new rule, the CFPB expects that each year, An additional 22,000 Americans Home loans will be approved, which ultimately benefits lenders, allowing them to approve more people for loans.

The new rule could also provide relief to about 63% of households with medical debt who have had to cut back on spending on basic needs like food and clothing while trying to pay off debt. About 48% of them were forced to withdraw from their savings, According to research conducted by the Kaiser Family Foundation.

Additionally, many Americans struggle to save for retirement or higher education because of medical debt, the Kaiser Family Foundation found.

👎 Are there any downsides to this plan?

Some hospitals and medical providers have warned that the Biden administration’s proposal could encourage doctors to request payments in advance before providing care. Some also suggested that the plan’s more flexible credit requirements could make it easier for people to take on debt they can’t handle. According to NPR.

“It is unfortunate that the CFPB and the White House are not considering the range of consequences that would result if medical providers were singled out for their billing, compared to other professions or industries,” said Scott Purcell, CEO of ACA International, a collections industry official. The leading trade association told NPR.