The Consumer Financial Protection Bureau says the change will hit $49bn in medical debt from credit reports.
Consumers in the United States will no longer have medical debt appear on their credit reports under changes that will make it easier for millions of Americans to get a loan.
The new law means that lenders will be prohibited from using medical information in their lending decisions, the Consumer Financial Protection Bureau (CFPB) said on Tuesday.
Under the change, an estimated $49bn in medical debt will be found on the credit reports of more than 15 million Americans, the CFPB said.
The consumer watchdog said its research shows that medical debt is a poor predictor of whether a loan will be repaid and that it expects the change to result in about 22,000 more loan approvals each year.
“People who are sick should not have their financial futures compromised,” CFPB Director Rohit Chopra said in a statement.
“The CFPB’s final rule will close a special loophole that has allowed debt collectors to abuse the credit reporting system to force people to pay medical bills they may not owe.”
US Vice President Kamala Harris said the legislation would “help more Americans save money, build wealth, and prosper”.
The move comes less than two weeks before US President Joe Biden hands over control of the White House to US President-elect Donald Trump.
It’s unclear whether the law, which takes 60 days to go into effect, will survive in its current form under Trump, who has promised to dismantle government regulations and roll back much of Biden’s agenda.
Many Republicans expressed concern that the proposed change would weaken the accuracy of credit reports.
The Consumer Data Industry Association and other trade groups representing financial institutions opposed the change, while the American Medical Association supported the measure.
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