Updated January 10, 2025 at 08:44 AM ET
The Consumer Financial Protection Bureau announced Tuesday that it's giving millions of Americans a fresh start by removing medical debt from their credit reports.
The agency says that some 15 million Americans will have an estimated $49 million in medical bills removed from their credit reports.
The new CFPB rule bars credit agencies from including medical debt on credit reports and prohibits lenders from using medical information against borrowers seeking loans. This goes further than a previous agreement last year, when the three major credit agencies agreed to take certain kinds of medical debts off credit reports, including those under $500.
Advocates have long pushed for a rule like this, arguing that medical debt appearing on credit reports is unfair and can put families in dire financial straits, possibly keeping them from getting the additional medical care they need or even causing families to fall into homelessness.
"People who get sick shouldn't have their financial future upended," CFPB Director Rohit Chopra said in a statement announcing the new rules. "The CFPB's final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe."
The CFPB says its research has found that medical debt isn't a good indicator of borrowers' ability to pay other debts, and that consumers are frequently asked to pay bills that should be covered by insurance or other programs.
Economist Benedic Ippolito of the American Enterprise Institute, a think tank that advocates for free markets, believes that CFPB's new rule could bring unintended consequences to healthcare consumers.
"By design, eliminating medical debts from credit reports reduces the consequences of not paying a health care bill, which — of course, that's the whole point of the policy, but it does reduce the incentive to pay the bills." Ippolito told Morning Edition this week.
Taking away these consequences, Ippolito argues, could change how providers go about collecting payments. For example, he said, some providers are already seeking higher payment before a medical service is provided.
"If you're somebody who may or may not be able to afford a bill now, suddenly you might not be able to get the service if you can't pay ahead of time compared to the status quo," Ippolito said. "So there are important trade-offs to consider."
He also said it's important to consider that a lot of existing medical debt stems from routine healthcare services as opposed to exorbitant and unexpected healthcare costs that sometimes capture headlines.
But that routine care for many adults can be related to critical treatment of chronic illnesses like cancer or diabetes, said Sara Collins, who researches health care coverage, access and performance at health care research nonprofit The Commonwealth Fund.
A November 2024 survey conducted by the Commonwealth Fund found that about half of all adults with medical debt say it's from treatment of existing conditions. The survey also suggests that a lot of medical debt is related to treating chronic conditions.
"Why should we make it impossible for people to move forward with their lives because of something that happened to them that they had a medical crisis?" Collins said.
Collins said CFPB's new rule is an important step forward, but it doesn't clear people of debt. She believes the healthcare industry will ultimately need to address drivers of costs, particularly hospitals as they charge patients based on prices they negotiate with insurance companies.
"The drivers of the medical debt don't go away. The rule treats a symptom but not the causes," Collins said.
Will the rule hold under Trump?
The CFPB's rule could post an early test for President-elect Donald Trump. While he could reverse it, he would be undoing a move that is popular with many Americans.
The agency estimates that the new rule could boost the credit ratings of Americans with medical debt by an average of 20 points.
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