Federal agencies tasked with minimizing effect of medical debt in loan considerations

On August 25, the Office of Management and Budget (OMB) directed federal agencies involved in providing consumer and small business loans — including the Small Business Administration, Department of Veterans Affairs, Department of Agriculture, and Federal Housing Finance Agency — to reduce the impact of debt medical when making underwriting decisions. This instruction is in accordance with Executive Order 14070 Posted in April, which in part directed federal agencies to examine avenues to reduce the burden of medical debt on consumers.

The OMB noted that one in three adults in the United States is estimated to have an unpaid medical debt. “The administration is committed to taking action to ease the burden of medical debt on American families and in particular to prevent medical debt from unfairly limiting Americans’ access to federal loans and loan guarantee programs. “

The OMB has outlined the following next steps for federal agencies to take to implement this directive:

  • Identify any statutory, regulatory or administrative changes necessary to modify the criteria to exclude medical debt or otherwise reduce its impact on underwriting decisions;
  • Conduct a cost-benefit analysis of these changes to determine whether they would be considered “economically significant”;
  • Assess administrative changes, staffing requirements and any technology infrastructure upgrades required to implement proposed changes;
  • Assess whether model updates are needed for cost estimation, particularly whether the exclusion of medical debt would explicitly or implicitly affect particular underwriting requirements, such as debt-to-income ratios.

As we discussed previously, the effect of medical debt on consumer credit has become a top priority for the Biden administration. In March 2022, the Consumer Financial Protection Bureau (CFPB) released a report highlighting the effect of medical collections on consumer credit reports. Just last month, the CFPB released its analysis of plans announced by the three national consumer reporting agencies to reduce medical debt reporting, concluding that “more work needs to be done.”

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