About 15 Million People Will Likely Have Better Credit Scores Under This New Rule

The government’s consumer watchdog agency has finalized a rule banning medical debt from credit reports in a move that could raise the credit scores of about 15 million people.

The Consumer Financial Protection Bureau (CFPB) finalized a previously announced rule Tuesday that pushed forward an initiative by the administration of President Joe Biden to reduce the impact of medical debt on household finances. The rule bans medical debt from credit reports and prohibits lenders from incorporating medical debt into their lending decisions.

“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a press release.“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.”

If it goes into effect in its current form, the major credit reporting bureaus (Experian, TransUnion, and Equifax) will not be allowed to include information about medical debts in consumer credit reports. That could push up FICO credit scores, which are based on those credit reports, and make it easier for people with medical debt to get mortgages and other loans, or even jobs, in the case of employers who look at credit scores when hiring.

Borrowers with medical debt would see their credit scores rise by an average of 20 points on the credit scale that typically ranges from 300 to 850, the CFPB estimates. Those increases could result in 22,000 more people per year being approved for mortgages, for example, the bureau said.

The bureau has argued that medical debt does not truly reflect borrowers’ ability or willingness to repay since consumers often get into medical debt unintentionally and that debt records are often added to credit reports erroneously due to the complexities of medical billing and insurance.

Will The Rule See The Light Of Day?

The new rule, however, faces an uncertain future because it won’t go into effect for at least 60 days, at which point President-elect Donald Trump will be in the White House. The bill is also likely to face legal challenges from financial companies.

“The CFPB lacks the legal authority to prohibit creditors from considering medical debt, as long as the record of the debt does not disclose the existence of the provider or the nature of the services provided,” Dan Smith, CEO of the Consumer Data Industry Association, a trade group that represents the big three credit bureaus, said in a statement. “The CFPB also lacks the authority to dictate what can and cannot be included on credit reports.”

Americans’ credit reports have already changed because of the bureau’s actions under the Biden administration. In 2022, under scrutiny from the bureau, the three major bureaus eliminated medical debt under $500 from credit reports, cutting the number of people with debt on their reports by two-thirds.

This is the Latest Rule In a Flurry of Actions

The finalization of the medical debt rule adds to the flurry of new regulations and lawsuits launched by the bureau in the last days before the new administration takes over. Since the election alone, the bureau has restricted bank overdraft fees, required payment app companies to submit to bank-like inspections of their activities, and launched consumer protection lawsuits against major companies, including payment Zelle, Walmart, and Experian.

Financial companies have pushed back against the most recent wave of CFPB regulations in the courts and have at least temporarily blocked a rule capping credit card late fees at $8 from going into effect.

The bureau faces an uncertain future under the Trump administration and Republican-controlled government. Many Republicans have been historically hostile to the agency created in 2010 by Democratic Senator Elizabeth Warren of Massachusetts in the wake of the Great Financial Crisis. Billionaire and close Trump advisor Elon Musk recently suggested the agency should be “deleted.”