The Biden administration finalized a new rule this week that prevents medical debt from being included on credit reports, as well as prohibits lenders from using certain medical information in loan decisions.

This is scheduled to provide relief to millions of Americans whose credit reports or scores have been negatively impacted by unpaid medical bills. For context, about 46 million people had medical debt listed on their reports in 2020, according to the administration.

Here’s what this rule means for Americans:

When it takes effect, which is 60 days after publication in the Federal Register, $49 billion unpaid medical bills will be removed from the credit reports of 15 million Americans, according to the Consumer Financial Protection Bureau (CFPB).

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The administration said this will ensure patients are no longer denied access to credit for home mortgages, car loans or small business loans.

About 22,000 additional affordable mortgages will be approved each year once the rule takes effect, the CFPB predicts.

A patient waits in a room in a doctor’s office. (iStock/iStock)

According to the CFPB, Americans who currently have medical debt on their credit reports could also see their credit scores increase by an average of 20 points.

The new rule will also prevent debt collectors from taking advantage of the credit reporting system to pressure people into paying bills they don’t owe.

15 MILLION AMERICANS WILL BE HARMED BY MEDICAL DEBT DESPITE CHANGES IN CREDIT AGENCIES

Previously, creditors could consider medical debts, which allowed “debt collectors to use the credit reporting system to coerce payments from patients for inaccurate or false medical bills,” according to the CFPB.

The CFPB’s New Rule Establishing Guardrails for Credit Reporting Companies:

Prohibits lenders from considering medical information

According to the CFPB, Americans who currently have medical debt on their credit reports could also see their credit scores increase by an average of 20 points. (Matt McClain/The Washington Post via Getty Images/Getty Images)

Lenders will no longer be able to use certain medical information to make loan decisions. This means that lenders will also be prohibited from using information about medical devices, such as prostheses, to require the devices to serve as collateral for a loan for recovery purposes.

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Ban medical debt from credit reports

Consumer reporting agencies will not be able to include medical debt information in credit reports and credit scores sent to lenders. This will help end the practice of using the credit reporting system to coerce payment of bills regardless of their accuracy. However, lenders will still be able to consider medical information to verify medical benefits, verify medical expenses a consumer needs a loan to pay, consider certain benefits as income when underwriting, and other legitimate uses.

In 2023, after the CFPB raised concerns about medical debt credit reports, three nationwide credit reporting conglomerates — Equifax, Experian and TransUnion — agreed to remove certain types of medical debt from reports. credit, including collections under $500.

Major credit scoring companies FICO and VantageScore also lowered the degree to which medical debt affects a consumer’s score.

Even with the changes, 15 million people still had outstanding medical bills in collections that appeared in the credit reporting system.