Unpaid Medical Debt Loses More of Its Financial Stigma

Agencies evaluating loan risk will overlook or downplay overdue medical bills

Doctor reviews test results with concerned father.
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In the latest effort to remove the punitive effects of having overdue medical debt on credit records, the White House is directing federal agencies that make loans to ignore a track record of unpaid medical bills whenever possible.

President Joe Biden on Monday ordered agencies including the Small Business Administration and the Department of Agriculture—which lends money to rural homebuyers—to change their underwriting practices so that unpaid medical debt doesn’t hurt their chances of getting a loan. The Department of Health and Human Services will also be examining reporting and collection practices of more than 2,000 healthcare providers, considering those findings for the first time when giving out federal grants.

The move adds to efforts to remove the harmful impacts that unpaid medical bills from doctors and hospitals can have on people’s prospects for getting a loan, a job, or an apartment. Medical debt can reduce credit scores, but it doesn’t tell lenders how reliable borrowers are when it comes to paying more typical bills because it’s such an uncontrollable and unpredictable expense, according to research by the Consumer Financial Protection Bureau, the government’s predatory lending watchdog. The CFPB announced last month that it was evaluating whether medical debt should even be included on credit reports at all.

Last month, under pressure from the CFPB, the nation’s three largest credit bureaus moved to blunt the impact of medical debt on their credit reports, including by removing paid debts altogether and excluding any individual debts of under $500.

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