A federal judge in Texas has overturned a rule established by the Consumer Financial Protection Bureau (CFPB) that aimed to eliminate medical debt from credit reports. On March 15, 2024, U.S. District Court Judge Sean Jordan, appointed by former President Donald Trump, ruled that the CFPB exceeded its authority under the Fair Credit Reporting Act. This decision has significant implications for millions of Americans burdened by medical debt.
Judge Jordan determined that the CFPB is not authorized to remove medical debts from credit reports, a move that was expected to positively impact the credit scores of many families. The CFPB had estimated that eliminating such debts could increase average credit scores by as much as 20 points for millions. The agency’s research indicated that outstanding medical bills are a poor predictor of an individual’s ability to repay loans, yet they frequently contribute to mortgage application denials.
In a related development, the three major credit reporting agencies—Experian, Equifax, and TransUnion—had announced plans last year to remove medical collections under $500 from consumer credit reports. The CFPB’s proposed rule would have gone further, banning all outstanding medical bills from appearing on credit reports and preventing lenders from using this information in their assessments.
According to the CFPB, the implementation of this rule would have removed approximately $49 million in medical debt from the credit reports of 15 million Americans. The agency also highlighted that one in five Americans has at least one medical debt collection account on their credit reports, with over half of all collection entries related to medical debts. This issue disproportionately affects people of color, with 28% of Black individuals and 22% of Latino individuals in the U.S. carrying medical debt, compared to 17% of white individuals.
The CFPB was created by Congress in response to the 2008 financial crisis, tasked with overseeing various segments of the consumer finance industry, including credit card companies and debt collectors. Earlier this year, the Trump administration sought to curtail the agency’s operations, which some critics argued would effectively dismantle its ability to protect consumers.
This ruling by Judge Jordan highlights the ongoing debate over consumer debt and the role of regulatory agencies in managing financial information. As discussions continue, many will be watching closely to see how this decision impacts the lives of those struggling with medical debt across the nation.
