A federal judge has ruled that medical debt can remain on Americans' credit reports, effectively nullifying a policy initiated by the Biden administration aimed at alleviating the financial burden of healthcare expenses for nearly one-third of the population. This ruling, delivered by U.S. District Court of Texas' Eastern District Judge Sean Jordan on Friday, represents a significant setback for the Consumer Financial Protection Bureau (CFPB), which has been actively working to remove medical debt as a factor in assessing creditworthiness.
In January, in the final days of the Biden administration, the CFPB introduced a rule designed to prevent medical debts from appearing on American credit reports. The goal was to ensure that such debts would not influence lenders assessing borrowers' financial viability. Then-CFPB Director Rohit Chopra emphasized that individuals who face health issues should not have their financial futures jeopardized due to medical expenses. The CFPB's final rule aimed to address the misuse of the credit reporting system by debt collectors, who often pressured individuals into paying bills they might not owe.
Credit scores play a crucial role in major financial decisions, affecting a person's ability to rent or buy a home, secure a car loan, and more. The CFPB cited its 2014 research indicating that medical debt is not a reliable predictor of whether a borrower will default on loans, suggesting it should not be included in credit reports. However, the Cornerstone Credit Union League, which filed a lawsuit against the CFPB, claimed that the agency had overstepped its authority in implementing this rule.
Judge Jordan's decision last week indicated that the CFPB's Medical Debt Rule exceeded the agency's jurisdiction. Following this ruling, various advocacy groups expressed their dismay, labeling it a setback for the millions burdened by medical debt. Colin Reusch, policy director at Community Catalyst—a nonprofit advocating for healthcare affordability—stated, "This ruling is a disappointing setback—but it will not stop the growing movement to protect people from the financial harm of medical debt." He criticized the court for siding with corporate interests over public welfare.
In contrast, the Consumer Data Industry Association (CDIA), which represents major credit bureaus, lauded the ruling, arguing that it protects lenders from extending credit to borrowers unlikely to repay. CDIA President and CEO Dan Smith stated, "America's financial system is the best in the world because it is based on a full, fair, and accurate credit reporting system." He emphasized that information about unpaid medical debts is vital for evaluating a consumer's repayment capacity.
According to an investigation by Kaiser Health News and NPR, an estimated 100 million U.S. citizens are burdened with healthcare debt, a uniquely American issue that often leads to severe consequences, including homelessness. Although over a dozen states have proposed laws to prevent medical debt from impacting consumers' credit scores, the debate remains contentious. Congressional Republicans have criticized the CFPB's efforts to remove medical debt from credit reports, while notable figures, including former Trump ally Elon Musk, have called for the agency's abolition.
As the conversation around medical debt and credit reporting continues, it is clear that this issue remains a significant concern for millions of Americans struggling under the weight of healthcare costs.
