The White House announced new rules that would stop medical debt from being used in credit reports, an election-year effort to provide relief to households in distress.
The rules would be helpful to consumers who have medical debt but want to get auto loans, mortgages, or other credit products. The plan was announced Tuesday by Consumer Financial Protection Bureau Director Rohit Chopra and Vice President Kamala Harris.
The White House has prioritized consumer protections, and President Joe Biden will undoubtedly tout the latest move on the campaign trail as a way of making the lives of voters, shackled by inflation and high interest rates, more palatable. Medical debt disproportionally affects low-income voters.
“One of the most significant consequences of carrying medical debt is the harm it does to a person’s credit score,” Harris said on a call with reporters. “Medical debt makes it more difficult for millions of Americans to be approved for a car loan, a home loan, or a small business loan.”
In an interview with ABC News ahead of the announcement, Chopra said the rules would be an “enormous relief” for people battling medical bills. He said that consumers are being unfairly punished for their medical debt.
“Our research shows that medical bills on your credit report aren’t even predictive of whether you’ll repay another type of loan. That means people’s credit scores are being unjustly and inappropriately harmed by this practice,” Chopra said.
The new guidance, which will undergo a public comment period, would affect millions of people, according to the CFPB, which said in April that 15 million patients continue to have medical bills on their credit reports despite some changes made by national credit reporting companies. Collectively, that medical debt totals nearly $50 billion.
“Experian, Equifax, and TransUnion took steps to remove many medical bills in part because of the recognition that they hold little predictive value,” Chopra said in April. “Findings from our latest research reveal the impact of these changes and the need for further reforms.”
The Biden administration said on Tuesday that the rule changes would raise those 15 million people’s scores by an average of 20 points and lead to the approval of some 22,000 additional mortgages every year.
The latest rulemaking push comes after Democrats on Capitol Hill pushed the CFPB to act on the matter. A group of Democrats, including Senate Banking Committee Chairman Sherrod Brown (D-OH) and Sen. Elizabeth Warren (D-MA), asked Chopra in March to propose rules to exclude medical debt from credit reports.
“Medical debt does not reflect spending habits or help lenders predict risk. Instead, it is evidence of either health issues or a medical emergency,” the group of 10 senators wrote in a letter. “Medical debt places patients at risk of downgraded credit and falling victim to predatory practices.”
Rep. Patrick McHenry (R-NC), the top Republican on the Financial Services Committee, hit back at the White House after it announced the move. He said that Chopra was acting like a “political arm of the White House” in pushing for the new rulemaking.
“This proposed rule will severely impair the accuracy and completeness of credit reports — raising the cost and reducing the availability of credit for all Americans,” the congressman said. “The CFPB pursuing a full prohibition of medical debt on credit reports will have a negative impact on our credit and health care systems.”
The CFPB, under Chopra, has promulgated several major new rules. For instance, last year, the CFPB announced new guidance to block large banks from charging excessive or “junk” fees for providing basic customer service.
Under federal law, banks and credit unions are required to provide complete and accurate account information when it’s requested by customers. Last year’s CFPB guidance aimed to clarify that people are not allowed to be charged fees for those basic requests.
The CFPB also announced a rule this year that would force most banks to cap credit card late fees at $8. The CFPB said fees cost consumers some $14 billion per year and that the new rule would go far toward curbing that, saving consumers an estimated $10 billion annually.
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The latest effort could be viewed as a way to help Biden’s message to voters who have soured on his handling of the economy. Biden’s economic approval ratings are underwater and dragging down his overall approval ratings, something that former President Donald Trump and Republicans have seized on in the lead-up to the November elections.
As of Tuesday, Biden’s overall approval rating clocked in at just under 38%, with a majority of voters disapproving of his job performance, according to an aggregation of polls by FiveThirtyEight.
