Last year, the Biden administration hinted at the possibility of removing medical debt from credit reports after US citizens called for it alongside student debt forgiveness. Now, in the final days of his presidency, the outgoing administration has finally fulfilled this policy change, which will likely benefit millions of Americans.
Per the US Consumer Financial Protection Bureau (CFPB), this policy will eliminate $49 billion in medical bills from the credit reports of about 15 million Americans.
Despite strong opposition by the banking and consumer data industries, Reuters reported that the new rule has been introduced. The industry representatives, for instance, argue that erasing medical debt from credit reports could limit their ability to determine whether to lend money to borrowers or not.
The concerns are heightened as the US gears towards the transition of President-elect Donald Trump's administration. There is a possibility that Trump or conservative lawmakers could reverse this regulation when he takes office.
Vice President Kamala Harris, an active proponent of the policy, said in a statement the ban is "life-changing for millions of families." She expressed her belief that nobody should fall into financial problems just because of illness or other medical reasons. The idea of the law is to enable greater financial scope to people, who have earlier experienced medical debts not reflecting their loan repayment capabilities.
According to the White House announcement, CFPB stated that medical debt does not reflect a consumer's ability to repay loans. The agency states that this would help consumers through better credit scores and higher opportunities for low-cost mortgages. The CFPB actually estimates that this new rule would result in an additional 22,000 approved low-cost mortgages annually. It will also prevent harassment of consumers by debt collectors seeking to recover debts that might not be actual.
The new rule has received acclaim from medical professionals and consumer advocacy groups. However, not everyone appreciates this decision. Critics said that this might result in less lending because the lenders cannot properly assess how risky the borrower may be. Still, this new rule is a monumental change in the treatment of medical debt in the overall financial system of the US.
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