White House Plans to Ban All Medical Debt From Credit Reports

The Biden administration is proposing to bar medical debt from credit reports, while also calling for the cancellation of medical debt for millions of Americans.

Vice President Kamala Harris and Director Rohit Chopra of the Consumer Financial Protection Bureau (CFPB) unveiled a new rule proposal on Tuesday, which could increase the credit scores of some Americans by 20 points or more by excluding all medical debts from their credit reports.

“Medical debt on a consumer credit report is just so different than a mortgage, auto loan or credit card,” Chopra said on a call with reporters. “Like a visit to the emergency room, the debt is taken on unexpectedly and in a time of crisis.”

For that reason, the Biden administration argues that medical debt should not be a consideration when lenders are determining whether to issue a loan. “In this way, the credit reporting system is more closely resembling a weapon for debt collectors rather than a tool for lenders to accept someone's likelihood to repay a loan,” Chopra said.

In March 2022, TransUnion, Experian and Equifax agreed to remove all paid medical debts and unpaid debts of $500 or below from credit reports following pressure from the CFPB. Those changes were implemented in July 2022 and April 2023, respectively.

Still, larger debts plagued the credit of millions of Americans. If the new rule goes into effect, the CFPB estimates it would remove upwards of $49 billion of remaining medical debt from the reports of 15 million Americans.

The proposal is undergoing an official rulemaking process by the CFPB. The agency is accepting public comments on its proposals until August 12 before finalizing a rule. Following that, the rule will be in effect “at some time early next year,” an official estimated.

That said, the rule (in any form) is not guaranteed as it could be challenged in court. So far, the credit reporting industry has been at least somewhat cooperative by removing some medical debts from credit reports without the need of regulation.

However, the Consumer Data Industry Association, a trade group that represents the credit bureaus, said in a statement to Money that “this is a complex issue” and it will need to review the proposal more closely before weighing in.

A call to forgive medical debt

While removing medical debt from credit reports blunts the impact such debt can take on the financial lives of Americans, the people involved are still responsible for paying what’s legally owed.

In a more direct effort to eliminate medical debt entirely, Harris called on states, local governments and health care providers to forgive the medical debt of struggling Americans. She highlighted a variety of local-level initiatives already in effect to cancel $7 billion of medical debt for some 3 million Americans.

Some states like Arizona, Connecticut and New Jersey are using funds from the American Rescue Plan to purchase the medical debt of its residents and forgive it. Local areas such as Cook County, Illinois; Cleveland, Ohio; Orange County, Florida, and a handful of other cities and counties are doing the same.

Biden administration officials said the debt forgiveness initiative is a “voluntary contract” between local governments and health care providers and should not run into any legal problems. While it is not mandatory, Harris rallied other parts of the country to get involved.

“Today, I'm issuing a call to states, cities and hospitals across our nation to join us in forgiving medical debt,” she said.

Already, Harris said $650 million of medical debt has been wiped out and there are plans for another $7 billion to be forgiven by 2026.

More from Money:

The Best Hospitals of 2024

Biden's New Student Loan Forgiveness Plan Could Cancel $150 Billion of Debt

Health Care Providers Are Pushing Medical Credit Cards — Here’s Why You Should Avoid Them