A US judge's decision on a federal regulation could have a big impact on mortgage applications
A Biden-era rule that would have banned the inclusion of medical debt on credit reports has been overturned by a federal judge in Texas, jeopardizing what consumer advocates say was a vital protection for Americans.
The rule had been finalized by the Consumer Financial Protection Bureau (CFPB) on January 7, two weeks before President Trump arrived in office – but US district judge Sean Jordan scrapped the regulation in a July ruling.
The CFPB move aimed to remove approximately $49 billion in medical bills from credit reports and prohibit lenders from using a person’s medical debt history in lending decisions.
Former CFPB director Rohit Chopra stated in January, “People who get sick shouldn’t have their financial future upended.” He argued the rule would “close a special carveout that has allowed debt collectors to abuse the credit reporting system.”
Judicial overturn
However, the Trump administration, along with two financial industry groups—the Consumer Data Industry Association and Cornerstone Credit Union League—requested the judge to vacate the rule. Judge Jordan agreed, stating that the CFPB exceeded its authority by creating a new regulatory scheme that conflicted with the Fair Credit Reporting Act, a report from USA Today noted.
Dan Smith, president and CEO of the Consumer Data Industry Association, supported the decision, saying, “Information about unpaid medical debts is an important element in assessing a consumer’s ability to pay.” He added that this outcome protects “the integrity of the system.”
Consumer concerns
Consumer advocates, however, voice strong disagreement. Patricia Kelmar, senior director of health care campaigns at the US PIRG Education Fund, highlighted that medical debt is often disputed and frequently contains billing errors.
According to a 2022 CFPB report, medical bills accounted for over half of all debt collection entries on consumer credit records. Kelmar warned that the problem “will likely get worse,” noting that medical debt is disputed nearly three times more often than credit card debt. She emphasized that millions of Americans are “penalized with lower credit scores, not because they owe the bill, but because they are still fighting it, or the hospitals reported it wrong.”
Prior to the rule’s reversal, the CFPB had projected that its implementation would lead to the approval of approximately 22,000 affordable mortgages annually and an average credit score increase of 20 points for those with medical debt.
While paid medical debts, unpaid medical debts less than a year old, and those under $500 had already been removed voluntarily by the three largest credit reporting companies, larger medical debts can now be expected to reappear on credit reports.
What are your thoughts on medical debt returning to credit reports? Share your insights in the comments below.
