A White House proposal would remove medical debt from credit reports, which may make it easier for millions of Americans to get employment, rent a house, or get a vehicle loan. (Photo : by STEFANI REYNOLDS/AFP via Getty Images)
The White House has proposed removing medical debt from credit reports, which could help millions of Americans secure employment, housing, and vehicle loans.
Vice President Kamala Harris and CFPB Director Rohit Chopra announced the proposal, highlighting that medical debt is not a reliable indicator of creditworthiness and its removal could enable around 22,000 additional mortgage approvals annually.
While major credit bureaus have excluded some medical debt from reports since last year, this proposal aims to extend relief to millions with higher medical expenses not covered by the bureaus' voluntary measures.
A White House proposal would remove medical debt from credit reports, which may make it easier for millions of Americans to get employment, rent a house, or get a vehicle loan.
At a press conference on Tuesday, Vice President Kamala Harris and Consumer Financial Protection Bureau Director Rohit Chopra publicly unveiled the proposal to remove unpaid medical bills from consideration when assessing an individual's creditworthiness.
Furthermore, medical debt is essentially worthless on a credit report since, in contrast to other types of debt, it cannot reliably forecast a consumer's creditworthiness, according to CFPB analysts.
Nevertheless, according to the agency, medical debt causes thousands of consumer-repayable mortgage applications to be rejected. According to the CFPB, the new regulation should result in the approval of around 22,000 more safe mortgages annually.
One of the more important government initiatives to address medical debt, the Biden administration announced in September that it intended to draft the legislation.
As of last year, the three major credit bureaus, Equifax, Experian, and TransUnion, ceased to include some medical debt on credit reports. Medical debt that was paid off or had a value of less than $500 was excluded.
However, millions of individuals with higher medical expenditures on their credit records were not included in the agencies' voluntary measures.
According to CFPB data released in April, around 15 million Americans have unpaid medical bills totaling more than $49 billion that are still unpaid.
Many people struggle with piling up debt as a result of unforeseen medical expenses, which may lead to more employment, house foreclosure, and shortages of food and other essentials, according to a KFF Health News-NPR study.
According to a KFF Health News research, hospitals most frequently utilize credit reporting as a collection tactic, a threat used to make people pay their debts.
For individuals with significant overdue medical bills, a single black mark on their credit report may not have a significant impact, but for others, it may be disastrous. For instance, there is mounting evidence that medical debt can lower credit ratings, which can make it more difficult for people to get housing and contribute to homelessness in many areas.
The regulations, which were unveiled on Tuesday, would prohibit credit-reporting companies from using medical debt as a determining factor for credit ratings. Medical debt will no longer be a factor that lenders can use to assess a borrower's loan eligibility.
The idea would be up for public discussion for many weeks, and if approved, it wouldn't go into force until after the November 2025 presidential election, which might completely derail the regulation.
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