The Biden administration has put forward a proposal on Tuesday that could potentially enhance the chances of millions of Americans to purchase a car or own a home. The proposal seeks to ban medical debt from credit reports, bringing about a significant change in this regard.
Vice President Kamala Harris and Consumer Financial Protection Bureau Director Rohit Chopra have announced a new rule, which is in line with President Joe Biden’s efforts to alleviate Americans’ concerns about rising costs. This move is particularly significant given that cost reduction is a top priority for voters in the upcoming election.
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In an exclusive interview with ABC News, Chopra revealed that the rule, which has been in development since September, may come into effect in the near future. The timeline for implementation is expected to be sometime next year.
In an exclusive interview prior to the policy announcement, Chopra expressed that the relief this new policy will bring to those struggling with hospital bills is immense. “So many people battle with bills related to hospital visits, and this is going to be a game-changer for them,” he shared with ABC News.
The regulation, which has been under development since September, may come into force in the early months of the coming year.
Chopra stated that their research indicates that having medical bills on your credit report doesn’t necessarily indicate whether you’ll be able to repay other types of loans. Therefore, this practice is unjust and inappropriate since it negatively impacts people’s credit scores.
According to the CFPB’s research, the implementation of the new rule could potentially result in the approval of safe mortgages for approximately 22,000 additional individuals per year. This would not only benefit borrowers, but lenders as well, as they would be able to approve more borrowers and potentially improve their credit scores.
Equifax, TransUnion, and Experian, among other major credit report companies, have already implemented measures to cease the use of medical debt in determining an individual’s creditworthiness. In addition to this, FICO and VantageScore have also recently reduced the weight of medical debt in their scoring systems.
According to the CFPB, a staggering $49 billion of medical debt is negatively impacting the credit scores of 15 million Americans. In order to address this issue, the proposed rule aims to apply the same reporting standards to all credit reporting across the United States.
According to KFF, medical debt is a widespread issue in the United States, impacting 40% of Americans. The majority of those affected have accumulated debts in the thousands of dollars.
If debts end up in collections, it can have a significant impact on credit scores. This, in turn, can make it more challenging to obtain car or home loans and may result in higher interest rates. Unfortunately, for those already struggling with their bills, this can create a slippery slope.
During a call with reporters on Tuesday, Harris expressed her concerns about how medical debt negatively affects millions of Americans. She stated that medical debt hinders their chances of being approved for a car loan, a home loan, or a small business loan. This, in turn, makes it more challenging for them to make ends meet and achieve financial stability. Harris believes that this situation is unfair and needs to be addressed.
When Lexi Coburn was 23 and without insurance in 2013, she encountered the problem of accumulating medical debt, which has plagued her ever since. Now 33 years old, she still grapples with the financial burden of those past medical bills.
Upon realizing that her feet were too swollen to walk, she made her way to the emergency room, feeling uncertain about where she could receive medical attention without insurance. Following a medical examination, it was revealed that she was experiencing early onset arthritis.
Coburn was unable to pay the $425 bill from her visit as it wasn’t accounted for in her budget. Having grown up in a family that struggled to afford medical expenses, she felt unprepared to navigate the healthcare system as a young adult.
Even after Coburn managed to sign up for health insurance through the Affordable Care Act, her medical debt continued to increase. As of 2019, her outstanding balance had ballooned to over $2,300, which included expenses from dental treatment and a visit to the emergency room.
When she attempted to purchase a car, the repercussions of her actions became apparent.
Coburn revealed that his medical debt became a hindrance in qualifying for a reasonable loan without a hefty monthly payment. “Immediately, I was faced with the challenge of overcoming my medical debt to secure a good loan,” he said.
Coburn expressed that the most exasperating part of his life was during his mid-twenties when he struggled to make sufficient income, and transportation was vital to reach his workplace.
As she watched her finances spiral downwards, Coburn couldn’t escape the mounting danger. Her bills were piling up, and her low credit score was hindering her ability to succeed and pay off her debts. In her words, “It just felt like a domino effect.”
According to Chopra, as the agency responsible for consumer empowerment, the CFPB receives numerous complaints regarding incorrect, confusing, and complicated medical bills. The new CFPB rule aims to tackle this issue and prevent long and tedious disputes between patients and billing departments.
According to him, inaccurate bills are a prevalent issue that many individuals face. It is quite common for patients to spend several months disputing bills, only to have it affect their credit report eventually.
Those in favor of the CFPB’s proposed rule highlight the fact that the collection of medical bills has a relatively low success rate.
According to Matt Notowidigdo, a health economics professor at the University of Chicago’s Booth School of Business, the repayment rates for medical debt are already quite low. Therefore, he believes that the recent policy change is unlikely to have a significant impact on people’s behavior regarding paying down their medical debts.
Linda Davis, a 61-year-old citizen of Grand Rapids, Michigan, suffers from chronic obstructive pulmonary disease, a lung disease that requires her to use a power wheelchair due to a lower back injury. She has come to terms with the fact that she may never be able to pay off her medical bills, which she approximates to be around $45,000 to $50,000.
According to Davis, there is a common misconception that having Medicare means being financially secure. However, this is far from the truth, and it can completely disrupt one’s life. Davis emphasized that Medicare takes over and controls every aspect of a person’s life.
According to her, the expenses for rent, electricity, cell phone bill, and groceries are all covered by her monthly income. However, she finds it challenging to fit her medical bills into her budget due to financial constraints.
Davis expressed her frustration about the overwhelming medical bills that she received after undergoing the procedure. She shared her concern, saying that it was impossible for her to pay all the medical bills that she had received. Even if she paid a small amount every month, it would take her a lifetime to clear them all. Davis felt helpless and unsure of what to do with the mounting bills.
Many health economists, including Notowidigdo, believe that the solution to America’s medical debt problem lies in providing adequate health care coverage to more people from the beginning. Instead of dealing with unpaid medical bills due to lack of insurance or insufficient coverage later on, it is crucial to enroll individuals in comprehensive health care plans upfront.
Hospitals and healthcare systems are already facing a challenge with the high bills and low repayment rates.
Experts cautioned that if the implementation of the CFPB rule results in a decrease in bill payments, it may ultimately harm patients.
According to Professor Ge Bai, who specializes in accounting health policy at Johns Hopkins University, hospitals will need to find alternative ways to compensate for the loss. However, implementing stricter payment measures, such as demanding payment prior to treatment, may have negative consequences for low-income patients.
According to Bai, patients may initially welcome the news, and it is likely that patient advocacy groups will champion the cause. However, in the long run, as the negative effects become apparent, it is anticipated that there will be greater opposition to the decision.
Bai’s concerns have been echoed by industry groups such as the Association of Credit and Collection Professionals.
In response to the CFPB’s proposal, ACA CEO Scott Purcell expressed his concerns about its potential negative impact on various sectors, including businesses, health care providers, patients, and consumers. According to Purcell, suppressing information about a consumer’s debt could lead to increased medical care costs and more upfront payments. He further warned that if the proposed rule is finalized, it may fundamentally change the current credit-based economy in the United States, resulting in reduced consequences for non-payment of bills and limited access to credit and health care for those who need it the most. Purcell’s statement to ABC News highlights the potential broad-reaching consequences of the CFPB’s proposal.
According to Chopra, the idea that more individuals will default on their healthcare debts due to the rule is unfounded. He emphasized that people will still be subject to other consequences that come with unpaid debts.
In the view of Chopra, even if individuals have paid their bills, they might still be vulnerable to collection actions and lawsuits. He believes that there are several ways in which people can face penalties for not paying their dues. However, he is wary of the credit reporting system being misused against those who have already settled their bills. “I just don’t want to see the credit reporting system be weaponized against people who already paid them,” Chopra expressed.
