$49 Billion in Medical Debt Wiped off Credit Reports – and the fight to stop it!
UPDATED: 1/8/2025
Just one day after the CFPB announced its groundbreaking rule to remove unpaid medical debts from credit reports, industry groups have filed a lawsuit challenging the decision. According to Reuters, organizations representing banks, credit unions, and debt collectors argue that the rule oversteps the CFPB’s authority and could lead to unintended consequences for lenders and consumers. This legal action casts uncertainty over the implementation of the rule, which is set to take effect in 60 days. Despite the backlash, consumer advocates continue to champion the rule as a crucial step toward financial fairness for millions of Americans.
Big news: unpaid medical debts are getting the boot from credit reports. The Consumer Financial Protection Bureau (CFPB) just announced a game-changing rule that stops these debts from hurting your credit score. This new rule, revealed on January 7, 2025, is set to kick in 60 days after it’s officially published. The goal? To lighten the load for millions of Americans and make it easier to access credit.
Why Medical Debt Is a Huge Deal
If you’ve ever dealt with medical bills, you know they can pile up fast. Right now, about one in five Americans has medical debt, and over half of all debt reported to collections is tied to healthcare costs. According to the CFPB, medical debt accounts for 58% of all third-party collections on credit reports. These debts hit communities of color the hardest: 28% of Black Americans and 22% of Latinos have medical debt, compared to 17% of white Americans.
Adding to the issue, medical debt is unique because it often stems from emergencies or unplanned situations, like sudden illnesses or accidents. Many Americans face these debts despite having insurance, highlighting systemic problems in the healthcare system.
What This Means for Everyday People
For most of us, this isn’t just some boring financial policy—it’s life-changing. Here’s how it could make a real difference:
- Better Credit Scores: If you’ve been dragged down by medical debt, you might see your credit score go up by around 20 points. That’s enough to turn a “no” into a “yes” when you’re applying for loans, credit cards, or even a mortgage. And better credit scores mean lower interest rates, which could save you serious cash.
- More Housing and Loan Options: Many landlords and lenders look at your credit score before giving you the green light. With medical debt out of the picture, more doors could open—literally.
- Less Stress: Medical bills often show up unexpectedly, adding anxiety to an already tough situation. Knowing they won’t tank your credit score can be a big relief.
- A Fairer System: Communities hit hardest by medical debt now have a better shot at financial stability. This rule helps level the playing field for everyone.
“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra
What’s Changing?
The CFPB’s new rule will wipe out $49 billion worth of medical debt from credit reports, boosting credit scores for 15 million people. Experts say this could lead to 22,000 more mortgage approvals every year.
It also changes how creditworthiness is assessed. Before, even small medical debts could weigh heavily on your credit score, making it harder to qualify for loans or get decent interest rates. Now, credit reports will focus on financial behaviors like paying rent, utilities, and loans on time rather than medical emergencies you couldn’t avoid.
Keeping Your Privacy in Check
Another win: lenders won’t see sensitive medical info when reviewing your credit. The rule also clamps down on shady debt collection practices, where collectors pressure people to pay questionable medical bills just to clear their credit reports. Medical bills are notoriously error-prone—in fact, a recent CFPB study found that 31% of people with medical debt said it was due to billing mistakes. This rule gives you some breathing room to sort out errors without your credit taking a hit.
Cheers and Jeers
Most people are celebrating this change. Advocacy groups point out that medical debt is rarely about being irresponsible with money—it’s usually about bad luck and a broken healthcare system. Carrie Joy Grimes from WorkMoney said it best: “Medical debt isn’t a reflection of being bad with money—any one of us can get sick or injured.”
But not everyone’s on board. Some banks and lenders aren’t thrilled. They argue that removing medical debt makes it harder to assess someone’s financial risk, which could lead to tighter lending standards. The American Bankers Association (ABA) has raised concerns that this move could ultimately limit access to credit.
How to Handle Medical Bills
This rule doesn’t erase medical bills—you still have to deal with them. Here are some tips to stay on top of things:
- Ask About Financial Help: Nonprofit hospitals often have charity care programs that can cut or eliminate your bills. Check out resources like Dollar For to see if you qualify.
- Know Your Rights: The No Surprises Act protects you from some unexpected out-of-network charges. Use it to push back on bills that don’t add up.
- Double-Check Your Bills: Medical billing mistakes are super common. Request an itemized bill to spot any errors.
- Talk to Your Insurer: Compare your bills with your insurance’s explanation of benefits. If something doesn’t match, don’t be afraid to appeal.
What’s Next?
This is a big win for consumers, but it’s not set in stone. The CFPB’s power could be challenged, especially with a new administration eyeing changes to its authority. Medical debt also won’t magically disappear—it’s still a major issue for many families, even if it doesn’t show up on their credit reports anymore. Advocates are calling for deeper reforms to tackle the root causes of medical debt, such as high healthcare costs and lack of insurance coverage.
The Bottom Line
The CFPB’s decision to ban medical debt from credit reports is a huge deal. For regular people, it means fewer financial hurdles, fairer credit scores, and a little less stress when life throws a curveball. This move has the potential to lift millions of Americans, giving them a real shot at financial stability and a brighter future. And that’s something we can all cheer for.
Attorney Ted Sink, founder of The Ted Law Firm, is a Yale, Stanford Business School, and Charleston School of Law graduate and former marketing executive who built a 7-figure law practice, earning millions for his clients. With experience in both law and advertising, Ted has been recognized in Forbes, Entrepreneur, and the ABA Journal. He speaks at industry conferences on marketing and law firm management, sharing insights from his unique background to help other firms grow. When not working, Ted enjoys traveling, diving, and dog-sitting golden retrievers.
