What would a world look like without medical debt? This sounds like a fantasy most people with debilitating medical debt dream about on a daily basis but as of this week, this could be a reality soon.

Following The Consumer Financial Protection Bureau (CFPB) announcement last month that it is starting its rulemaking process to remove medical bills from Americans’ credit reports, The Biden Administration is now stepping in to aid in this federal-rule process.

As part of this change, creditors would have to change their underwriting decision process and medical debt collections would not be able to use corrupt coercive tactics. In other words, this proposal could be a gamechanger. “No one in our nation should have to go into debt just to get the quality healthcare that they need,” Vice President Kamala Harris said in a statement. “These measures will improve the credit scores of millions of Americans so that they will better be able to invest in their future.”

What medical debt in America looks like

The proposal outline could potentially help the tens of millions of families in America burdened with medical debt to no longer be paralyzed by these expenses. About one in eight Americans who have medical debt owe $10,000 or more, but the average is around $2,400 (according to the Census Bureau). The landscape of medical debt is characterized by skyrocketing healthcare costs, insurance gaps, and the prevalence of high-deductible health plans. Many Americans find themselves facing overwhelming medical bills, often resorting to taking out medical loans to cover their expenses. Despite efforts to address the problem, medical debt remains a significant challenge for countless Americans, highlighting the urgent need for comprehensive healthcare reform and better access to affordable medical care.

How the CFPB’s rulemaking process will create major change

The CFPB’s decision to embark on a rulemaking process to eliminate medical bills from credit reports marks a significant turning point in addressing this issue. By removing medical bills from credit reports, individuals who have struggled with medical debt will have a fairer chance at securing loans, finding employment, and achieving financial stability. This change is expected to have a positive impact on the financial well-being of countless Americans.

Underwriting Decision Changes

One of the key aspects of this change is that creditors will need to adapt their underwriting decision processes. Currently, medical bills on credit reports can lead to higher interest rates on loans or even loan denials, which further exacerbates the financial stress of individuals already burdened with medical debt.  The CFPB’s rulemaking process aims to rectify this by ensuring that medical bills no longer negatively influence creditors’ lending decisions. This will promote more equitable access to credit for those affected by medical debt.

Restrictions on Debt Collection Practices

Additionally, the CFPB’s initiative seeks to crack down on corrupt and coercive debt collection tactics that have become all too common in the medical debt collection industry. Debt collectors often employ aggressive and intimidating methods, causing undue distress to consumers. The proposed rules aim to establish stricter guidelines, ensuring that debt collectors engage in fair, transparent, and ethical practices when pursuing medical debt collection. This will not only protect consumers from harassment but also help them navigate the complexities of medical debt repayment more effectively.

In addition to the above industry changes, people who have or are currently impacted by medical debt will be better off. Medical debt is a leading cause of credit score damage in the U.S.. By removing medical bills from credit reports, people would see an immediate boost in their credit scores. This would make it easier for them to access credit at more favorable terms, such as lower interest rates on loans and credit cards. They will also have easier access to credit, increased financial stability, enhanced employment opportunities and will be less reluctant to not seek medical care.

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