A federal judge in Texas has reversed a Biden administration rule that would have banned medical debt from appearing on credit reports and prohibited lenders from using medical information in lending decisions.
The rule exceeds the authority of the Consumer Financial Protection Bureau and violates the Fair Credit Reporting Act, Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas ruled. Although the act does not permit the CFPB to remove medical debt from reports, it can permit or encourage creditors to use other categories of information, he said.
The CFPB, an independent agency, finalized the rule in January as former President Biden was set to leave office. The Biden administration estimated that the action would remove nearly $50 billion of medical debt from the credit reports of roughly 15 million Americans, so lenders no longer would be able to take it into consideration when deciding whether to issue a loan. The change was estimated to raise these credit scores by an average of 20 points and could lead to 22,000 additional mortgages being approved every year, according to the CFPB.
Supporters of the rule, including the American Medical Association and the American Cancer Society, argued it was a matter of fairness. Unexpected health problems, they said, should not stand in the way of securing a mortgage or auto loan.
Former Vice President Kamala Harris supported erasing medical debt, and it became part of her message during the 2024 presidential campaign. She vowed to take Biden’s health care accomplishments even further, including fully erasing the debt. “No one should be denied economic opportunity because they got sick or experienced a medical emergency,” she said in January.
However, under new leadership appointed by President Trump, the CFPB abandoned its defense of the rule. Instead, it joined with credit reporting industry trade groups to argue that the regulation exceeded its legal authority
The Consumer Data Industry Association and the Cornerstone Credit Union League brought the lawsuit that led to Jordan’s ruling. Dan Smith, head of the data industry association, welcomed the decision, according to Reuters. “This is the right outcome for protecting the integrity of the system,” he said.
With the federal rule overturned, medical debt can continue to appear on credit reports, although the three major credit bureaus (Experian, TransUnion and Equifax) have voluntarily made some changes, such as removing debt of less than $500 or less than a year old. Several states also have passed laws that limit how medical debt can be reported or collected. California, Colorado and New York, for example, restrict or prohibit the inclusion of medical debt on credit reports.
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