New rule erases medical debt from credit reports; Lincoln banker says it could backfire

LINCOLN, Neb. (KLKN) – The Consumer Financial Protection Bureau decided Tuesday to remove medical debt from credit reports.

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That will blot out an estimated $49 billion in unpaid medical bills from about 15 million Americans’ credit reports.

The bureau says borrowers’ credit scores could see an average increase of 20 points.

Steven on the Now Local News App said the decision will help him.

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“If they take the medical off the credit consumer report, honestly, that’s going to jump my credit up because the only thing negative on there is the over-expensive and extra expensive medical payments you have to make for all these services that you might need,” he said. “One trip to the ER is over a thousand dollars for instance, so it’s going to help me a lot.”

The rule will help families get approved for car loans, home loans and small-business loans.

But Brad Koehn, the regional president of Midwest Bank, said while bankers understand the intent behind the ruling, it may mean that you get saddled with a loan that you cannot afford.

“Our concern is that for those folks, that we may not see their entire financial picture, that we may not be able to provide them the best financial advice and good sound decision-making without seeing the total picture of their debt,” he said. “And it could cause them more financial harm than good.”

Other groups that oppose the change said this could result in reduced consequences for not paying bills, which will reduce access to credit and health care for those who need it most.

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But for others, the CFPB said it will help end coercive debt collection practices and block creditors from using medical information in lending decisions.

It will also ban lenders from using medical devices like wheelchairs or prosthetic limbs as collateral for loans.

Melanie on the NOW Local News App said she is happy about the new rule.

“It’s great that medical debt will no longer go on a credit report,” she said. “It’s unfortunate that it did in the first place because someone got sick and their insurance company didn’t pay for their care, so a person got into debt just because they got sick.”

The rule is set to take effect 60 days after being published in the Federal Register, but experts said it could be delayed by legal challenges.