Medical debt will be allowed to remain on consumer credit reports after a Texas federal judge overturned a rule on July 11 that would have banned the information from being used to determine someone’s credit worthiness.
The Consumer Financial Protection Bureau (CFPB) proposed the rule in June 2024 and finalized it this January in an effort to shield consumers from the negative consequences of high medical costs. Rohit Chopra, who was the CFPB director at the time, said in a statement “medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.”
The Biden-era CFPB estimated last year that roughly 15 million people in the US had a combined $49 billion in medical debt that was negatively affecting their credit scores. In 2021, about 8% of all US adults had medical debt totaling at least $220 billion, according to the Peterson-KFF Health System Tracker.
The backstory. Though the rule was set to take effect this March, two credit agency trade groups—Cornerstone Credit Union League and the Consumer Data Industry Association—sued the CFPB, arguing only Congress has the power to pass such a change.
A court order delayed the rule’s implementation, and in April, the CFPB, now under the Trump administration, joined the credit agency plaintiffs in asking for it to be thrown out.
US District Judge Sean Jordan of the Eastern District of Texas sided with the plaintiffs, agreeing the CFPB had exceeded its authority when it passed the rule.
“As it stands, [the Fair Credit Reporting Act] authorizes [credit reporting agencies] to include information about a consumer’s medical debts in consumer reports when properly coded to conceal the name of the provider and the nature of the services provided. It also permits creditors to use that information to determine a consumer’s credit eligibility,” Jordan wrote in his decision.
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The response. Colin Reusch, director of policy at Community Catalyst, a nonprofit that advocates for an equitable health system, said in a July 16 statement Jordan’s ruling is a “disappointing setback.”
“The CFPB’s rule would have kept unfair, often inaccurate medical bills from destroying people’s credit scores. Instead, a court sided with corporate profiteers rather than the public,” he said.
A group of senators, including Democrats Elizabeth Warren and Chuck Schumer, were also seemingly not pleased with the judge’s decision, saying in a July 18 statement they would “push” the CFPB to release information on why it decided to drop the rule.
On the other side, Dan Smith, president and CEO of the Consumer Data Industry Association—one of the credit agencies that sued the CFPB—reportedly told NPR in a statement that “information about unpaid medical debts is an important element in assessing a consumer’s ability to pay. This is the right outcome for protecting the integrity of the system.”
Also…Ge Bai, a professor of health policy and management at Johns Hopkins Bloomberg School of Public Health, told Healthcare Brew last year when the rule was proposed that it may be bad news for hospitals, as it could make it harder to collect unpaid debts.
“Once hospitals know that the chance for them to collect debt becomes lower, they will have to take other actions to remedy. That actually will make it harder for low-income patients to access care,” Bai told us.