Judge Grants CFPB, Trade Groups’ Request To Toss Biden-Era Medical Debt Rule

A federal judge has granted trade associations and the Trump administration’s request to vacate a Consumer Financial Protection Bureau (CFPB) regulation that would remove medical debt from credit scores.

The Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information final rule had been issued by the CFPB on Jan. 7 under the Biden administration and initially set to go into effect in March. Plaintiff trade groups Cornerstone Credit Union League and the Consumer Data Industry Association sued to block it later that same day.

CFPB initially opposed the lawsuit. After Trump reentered the Oval Office, the regulator requested and received a three-month pause on the litigation so that it could review its position. In an April 30 joint motion filing with the plaintiffs, CFPB and its acting director, Russell Vought, wrote that they agreed with the argument that CFPB’s rule exceeded the bureau’s authority and should be pulled.

In February, two individuals with medical debts and two nonprofits that support those with medical debt (the New Mexico Center on Law and Poverty and Tzedek DC) filed a motion to intervene in the case and take up defense of the medical debt rule amid reports that the regulator’s employees and workforce were being gutted by the new administration.

Following a June hearing and subsequent filings from the parties, U.S. District Judge for the Eastern District of Texas Sean Jordan, who was appointed in 2019 by Donald Trump, on Friday sided with the plaintiffs and the government and vacated the rule in full.

“America’s financial system is the best in the world because it is based on a full, fair and accurate credit reporting system,” Dan Smith, president and CEO of the plaintiff Consumer Data Industry Association, said in a statement applauding the decision. “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.”

Mark Detrick, CEO of healthcare debt purchaser Capio, also commended the ruling, saying the regulation would hurt doctors, hospitals and patients. The judge’s ruling “clears the way for new, common-sense solutions that protect both patients and providers” such as “positive credit reporting” that builds credit upon on-time medical debt repayments, he said.

Some major credit reporting agencies voluntarily removed some medical collections from credit reports in 2022. CFPB’s final rule, if implemented, was expected by the bureau to improve the scores of 15 million people by an average of 20 points due to the billions of outstanding medical debt that remained. It would also prohibit lenders from considering borrowers’ medical information during assessments.

Advocates for the regulation had said it would bring relief to lower- and middle-class consumers. Removing it would “destabilize the financial security of the 15 million Americans with $49 billion in medical debt in collections and tilt the economy in favor of debt collectors and insurance companies,” Adam Rust, director of financial services for the Consumer Federation of America, said in May.

“The facts are clear: Medical debt is not predictive of creditworthiness,” Allison Sesso, president and CEO of nonprofit Undue Medical Debt, said in a statement. “This decision will hurt people’s financial futures, including their ability to buy a home, care for their families, or even get a job—all because they got sick, injured or were born with a chronic condition through no fault of their own. It will also further decrease their willingness to get the care they need.”

Jordan, in the ruling, wrote that the regulation violated the plain text of a 2003 amendment to the Fair Credit Reporting Act related to medical debt. It allows consumer reporting agencies “to furnish information about medical debt if that information is reported in a way that does not identify the provider of the services or expose the underlying medical condition,” and permits creditors “to use medical-debt information for credit decisions if the information is coded,” the judge summarized.