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What to know about Biden’s proposal to ban medical debt from credit reports

The CFPB reports that 15 million Americans have $49 billion of medical debt, which is impacting their credit scores.

President Joe Biden and Vice President Kamala Harris leave the stage in the gym at Girard College Wednesday, May 29, 2024 kicking off their campaign’s “Black Voters for Biden-Harris” effort during a rally at the majority-Black prep school in Fairmount.
President Joe Biden and Vice President Kamala Harris leave the stage in the gym at Girard College Wednesday, May 29, 2024 kicking off their campaign’s “Black Voters for Biden-Harris” effort during a rally at the majority-Black prep school in Fairmount.Read moreTom Gralish / Staff Photographer

President Joe Biden’s administration has proposed a rule that would ban medical debt from credit reports.

The proposed rule, which Vice President Kamala Harris and Consumer Financial Protection Bureau Director Rohit Chopra announced Tuesday, would block medical debt from being used as a factor to evaluate borrowers’ fitness for mortgages and other types of loans.

It’s the latest effort from the Biden administration to lower costs for consumers, months ahead of the presidential election. Voters continue to rank the economy and inflation as top election issues.

Here’s what to know.

What is Biden’s proposal for medical debt?

The proposed rule would do the following, according to a White House fact sheet:

  1. Ban credit reporting agencies from including medical debt in their credit score calculations.

  2. Block medical debt from being a factor used to evaluate if a borrower is eligible for a loan, including mortgages.

  3. Address incorrect, confusing, and complex medical bills to help avoid lengthy patient-billing disputes.

What would that mean for people with medical debt?

The CFPB reports that 15 million Americans have a combined $49 billion of medical debt that’s impacting their credit scores. Medical debt impacts two in every five Americans, according to KFF, a health policy research organization.

When debts go to collections, it can bump credit scores down — in turn making car and home loans harder to secure and often coming with higher interest rates. This can cause a domino effect for people already struggling to pay bills. The White House has noted in previous statements that medical debt disproportionately harms low-income Americans and communities of color.

The Biden administration is calling on states and localities to allocate their own funding toward medical debt relief, citing past-due medical debt often being available for purchase at a discount.

The office is also urging states to pass legislation or take executive action that would expand eligibility for financial assistance to those impacted by medical debt.

While some major credit reporting companies — like Equifax and Experian — have already stopped factoring in medical debt into credit scores, this new rule would apply to all credit reporting nationwide.

The CFPB estimates that 22,000 more people would get approved for safe mortgages annually if the rule goes into effect. The agency also anticipates a chain reaction, telling ABC that peoples’ credit scores improving could mean more borrowers being approved.

What steps are needed for the proposal to be adopted and how long will it take?

Proposed rules like this have to go through a public comment period for several weeks.

The public comment period’s timing means this November’s election results will be a determining factor regarding if the rule is finalized, according to the Washington Post.

When would the law go into effect?

Chopra with the CFPB told ABC the policy would go into effect sometime next year. This is contingent on the terms making it past the public comment period and the presidential administration in office by next year opting to move forward with things.