**Biden Administration’s New Rule Eliminates Medical Debt from Credit Reports**
In a significant move, the Biden administration has announced a new rule that will remove unpaid medical bills from credit reports, preventing them from affecting loan approval. This decision is aimed at preventing individuals with medical debt from being denied loans for mortgages, car loans, or small business loans.
**New Rule: Unpaid Medical Bills Won’t Show Up on Credit Reports**
The Consumer Financial Protection Bureau (CFPB) will implement this rule, which will remove $49 billion in medical debt from the credit reports of over 15 million Americans. This change will prevent lenders from considering medical debt when deciding to grant loans. This move is expected to increase credit scores by an average of 20 percentage points.
**Impact on Credit Scores and Loan Approval**
According to the CFPB, the removal of medical debt from credit reports could lead to an additional 22,000 mortgages being approved per year. This decision is expected to have a positive impact on many individuals’ financial lives. As Vice President Kamala Harris stated, “No one should be denied economic opportunity because they are sick or experiencing a medical emergency.”
**Governments Tackle Medical Debt**
The Biden administration has been working to address medical debt, and the government has used pandemic aid packages to eliminate over $1 billion in medical debt for more than 700,000 Americans. State and local governments have been instrumental in eliminating medical debt, and this new rule is a significant step forward in addressing the issue.
**Why Medical Debt Isn’t a Good Predictor**
The CFPB has found that medical debt is a poor predictor of an individual’s ability to repay a loan. In response to this, three national credit reporting agencies – Experian, Equifax, and TransUnion – announced last year that they would remove medical collection debts under $500 from U.S. consumer credit reports.
**Applicability and Implementation**
The new rule targets outstanding bills that appear on credit reports. The CFPB will work with lenders and credit reporting agencies to ensure a smooth implementation process. As with any new rule, there may be a transition period during which lenders and credit agencies adjust to the changes.
**Frequently Asked Questions (FAQ)**
**Q:** What is the impact of the new rule on credit scores?
**A:** The removal of medical debt from credit reports is expected to increase credit scores by an average of 20 percentage points.
**Q:** Will all medical debt be removed from credit reports?
**A:** The new rule targets outstanding bills that appear on credit reports, and will remove $49 billion in medical debt from the credit reports of over 15 million Americans.
**Q:** Will lenders still consider medical debt when deciding loan applications?
**A:** No, lenders will no longer be able to consider unpaid medical bills when deciding to grant loans.
**Q:** What is the role of the Consumer Financial Protection Bureau (CFPB) in this new rule?
**A:** The CFPB is implementing the new rule, which will remove medical debt from credit reports.
**Q:** How will state and local governments be involved in addressing medical debt?
**A:** State and local governments have already used pandemic aid packages to eliminate over $1 billion in medical debt for more than 700,000 Americans.
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**Conclusion**
The new rule announced by the Biden administration marks a significant step forward in addressing medical debt and ensuring equal access to financial opportunities for all individuals, regardless of their credit history. By removing medical debt from credit reports, lenders will no longer be able to use medical debt as a reason to deny loans. This decision has the potential to positively impact the lives of millions of Americans and provides a much-needed relief to those who have struggled with medical debt.
