In a move to address pocketbook concerns and provide relief to millions of Americans struggling with medical debt, the Biden administration is set to announce new rules that will prevent medical debt from being used to evaluate borrowers' fitness for mortgages and other types of loans.

According to sources familiar with the matter, the rules, which will be proposed by the Consumer Financial Protection Bureau (CFPB), aim to address the disproportionate impact of medical debt on low-income Americans and communities of color. The White House has repeatedly emphasized the need to tackle this issue, highlighting how medical debt can create financial vulnerabilities and hinder individuals' access to necessary medical care.

Under the proposed rules, credit reporting agencies would be prohibited from including medical debt when calculating credit scores. This move aims to alleviate the burden on individuals with medical bills on their credit reports, which currently affects approximately 15 million Americans, as reported by the CFPB in April. Additionally, lenders will be barred from using medical debt as a determining factor for loan eligibility.

While the proposal will undergo a period of public comment, with the finalization of the measures likely being determined by the outcome of this November's election, the Biden administration is hopeful that these rules will have a positive impact on borrowers. Unlike the previous administration, President Donald Trump did not prioritize the removal of medical debt from consumers' credit reports during his time in office.

Experts have warned about the adverse effects of medical debt on both the financial and mental health of individuals. Cynthia Cox, Vice President at the nonpartisan health-care research organization KFF, highlights how medical debt can perpetuate a difficult cycle, particularly for those who are already sick and facing a reduced ability to work.

While the proposed rules are a step in the right direction, there are concerns that they may not fully address the challenges faced by individuals with multiple derogatories on their credit reports. Neale Mahoney, a Stanford University economist who has studied medical debt, points out that removing a handful of derogatories may not significantly improve a person's credit score if there are other red flags present.

Vice President Kamala Harris, along with CPFB Director Rohit Chopra, has been vocal about the need for these new rules, emphasizing that medical debt should not be a barrier for individuals seeking car loans, home loans, or small-business loans. This aligns with the efforts of other Democrats, such as Senator Bernie Sanders, who proposed legislation in May to eliminate all existing medical debt and place restrictions to limit future medical debt.

In recent years, Democratic mayors in cities like Washington D.C. and New York have also taken action to relieve residents' medical debt by purchasing existing balances and canceling them immediately. These efforts further highlight the urgency and commitment to addressing the challenges posed by medical debt.

The announcement of these forthcoming rules signifies President Biden's commitment to addressing pocketbook issues and providing financial relief to those affected by medical debt. As the proposed rules undergo further scrutiny and public comment, their potential impact on borrowers' loan eligibility remains a critical concern for individuals across the country.