Federal judge reverses rule that would have removed medical debt from credit reports

Key Points

• A federal judge in Texas ruled that the CFPB’s rule removing medical debt from credit reports exceeded the agency’s authority under the Fair Credit Reporting Act.
• The CFPB had estimated the rule would remove $49 million in medical debt from 15 million Americans and raise credit scores by an average of 20 points.
• Medical debt collections disproportionately impact communities of color, affecting 28% of Black, 22% of Latino and 17% of white Americans.
• While Experian, Equifax and TransUnion agreed to remove medical collections under $500, the blocked CFPB rule would have barred all outstanding medical bills from credit reports and lender use.

NEW YORK (AP) — A federal judge in Texas removed a Biden-era finalized rule by the Consumer Financial Protection Bureau that would have removed medical debt from credit reports.

U.S. District Court Judge Sean Jordan of Texas's Eastern District, who was appointed by President Donald Trump, found on Friday that the rule exceeded the CFPB 's authority. Jordan said that the CFPB is not permitted to remove medical debt from credit reports according to the Fair Credit Reporting Act, which protects information collected by consumer reporting agencies.

Removing medical debt from consumer credit reports was expected to increase the credit scores of millions of families by an average of 20 points, the bureau said. The CFPB states that its research has shown outstanding healthcare claims to be a poor predictor of an individual’s ability to repay a loan, yet they are often used to deny mortgage applications.

The three national credit reporting agencies — Experian, Equifax and TransUnion — announced last year that they would remove medical collections under $500 from U.S. consumer credit reports. The CFPB’s rule was projected to ban all outstanding medical bills from appearing on credit reports and prohibit lenders from using the information.

The CFPB estimated the rule would have removed $49 billion in medical debt from the credit reports of 15 million Americans. According to the agency, one in five Americans has at least one medical debt collection account on their credit reports, and over half of the collection entries on credit reports are for medical debts. The problem disproportionately affects people of color, the CFPB has found: 28% of Black people and 22% of Latino people in the U.S. carry medical debt versus 17% of white people.

The CFPB was established by Congress after the 2008 financial crisis to monitor credit card companies, mortgage providers, debt collectors and other segments of the consumer finance industry. Earlier this year, the Trump administration requested that the agency halt nearly all its operations, effectively shutting it down.

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