The Consumer Financial Protection Bureau moved on Tuesday to ban medical debt from appearing on credit reports, potentially lifting the credit scores of about 15 million Americans and making it easier for them to obtain loans.
The finalized new rule would effectively prohibit loan providers from using medical information while making lending decisions. It is set to take effect 60 days after publication in the federal register, but with President-elect Donald J. Trump returning to office this month, its future remains in question.
The bureau has found that having medical debt on a credit report is not a good predictor of whether a borrower will repay a loan, and that consumers frequently report receiving inaccurate bills. Biden administration officials said that the change could result in the approval of thousands of additional affordable mortgages each year, and that Americans with medical debt on their credit reports could see their credit scores increase by an average of 20 points.
“People who get sick shouldn’t have their financial future upended,” Rohit Chopra, the bureau’s director, said in a statement. “The C.F.P.B.’s final rule will close a special carve-out that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
The rule would remove an estimated $49 billion in medical bills from credit reports, according to the agency.
But Republicans could soon try to undo the rule. Mr. Trump has promised to slash government regulations and unravel much of the Biden administration’s policy agenda. Republican lawmakers could also try to roll back certain Biden-era regulations using the Congressional Review Act.
The rule has already incited controversy. After the bureau proposed the rule in June, a group of House Republicans wrote in a letter to Mr. Chopra that they had “serious concerns” over the attempt to “weaken the accuracy and completeness of consumer credit reports.”
“The C.F.P.B.’s recent notice of proposed rulemaking restricting inclusion of medical debt in credit reports and scores will undermine underwriting processes and increase risk in the financial system, to the detriment of consumers,” the lawmakers wrote in August. “This effort will have significant negative effects on access and affordability of credit for all consumers, and particularly for low-income borrowers.”
Some Republican lawmakers have criticized the bureau, which has issued a slate of new rules and proposals in recent weeks, for not pausing its regulatory agenda after the election.
Banking trade groups, too, have sharply critiqued the proposal. In a comment letter in August, the Bank Policy Institute and the Consumer Bankers Association argued that the proposal would harm consumers by increasing the cost and decreasing the availability of credit.
“By significantly limiting creditors’ visibility into and consideration of a consumer’s medical debts and expenses in underwriting decisions, consumers may be extended more credit than they can afford, which could lead to default,” the groups wrote.
The new rule comes after the three major credit reporting agencies — TransUnion, Equifax and Experian — announced in 2022 that they would take certain types of medical debt off credit reports, including debts smaller than $500.
Consumer advocacy groups have praised the rule. Christine Chen Zinner, a senior policy counsel at Americans for Financial Reform, said it would help many Americans saddled with medical debt.
“For somebody who happened to have the misfortune of an unplanned health event, it’s really unfair for them now to be punished with a lower credit score, more expensive loans and less access to credit,” she said.
Although Republicans could try to undo the rule, Ms. Chen Zinner said lawmakers could find it difficult to do so. “Undoing these protections would not be looked upon very favorably by the general public,” she said.
