The Consumer Financial Protection Bureau or CFPB, released a final rule prohibiting the inclusion of medical debt on credit reports. Effective March 2025, this amendment prevents lenders from seeing medical debt when considering a loan.
The ruling aims to make loans more accessible and prevent consumers from paying bills they don’t owe.
Those who accumulate medical debt often suffer a dip in their credit score. With lower scores, it’s harder to qualify for loans, spanning from cars to mortgages.
The CFPB said the inclusion of medical debt results in thousands of denied mortgage applications and that these mortgages are often affordable.
“We found that medical debts provide little predictive value to lenders about borrower’s ability to repay other debts,” said the CFPB.
Nearly 15 million Americans will have a total of $49 billion wiped from credit reports after the ruling takes effect. With the change, those with medical debt can expect their credit score to raise an average of 20 points.
The amended law also prevents a lender from using medical information as collateral for a loan. In the past, a lender could use a consumer’s prosthetic limb as collateral, but through an effort to increase consumer privacy and protection, the amended regulation prevents this.
With the new push for consumer protection, the 100 million Americans who currently have medical debt, have a lower risk for financial disruption.
“People who get sick shouldn’t have their financial future upended,” said Rohit Chopra, director of CFPB.
Some consumers said they received medical bills for treatments that insurance should have covered, but with pressure from debt collectors, they paid the bills. With the renewed regulation, the CFPB hopes to prevent this.
The amended law will take effect on March 17, 2025. For more information visit the CFPB website.
Author: Hannah Clove
Photo courtesy of IStock
Editor: Anna Mower
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