A federal judge in Texas has reversed a Biden-era Consumer Financial Protection Bureau (CFPB) rule which barred medical debt from appearing on credit reports, a move that is set to negatively affect millions of credit scores across the country.
In his opinion, Judge Sean Jordan of the US District Court of Texas Eastern District said that the bureau had overstepped its authority in enacting the rule under the Fair Credit Reporting Act, which “authorizes creditors to consider such information when making credit decisions.”
Newsweek has reached out to the CFPB via email for comment.
Why It Matters
The credit scores of millions of Americans are weighed down by medical debt. According to the CFPB, the rule would have eliminated an estimated $49 billion in medical bills from the credit reports of some 15 million Americans.
As a result of the decision, these unpaid bills will continue to weigh on Americans’ creditworthiness. One expert told Newsweek that, “for many Americans, even a relatively small dip in their credit score can be significant,” affecting their ability to buy homes, secure loans, or even rent apartments.
What To Know
The CFPB’s rule was finalized in January, weeks before Trump’s inauguration, and was set to go into effect in March. In addition to prohibiting reporting agencies from including medical debt information in credit reports, it would have barred creditors from considering medical debt when making loan decisions.
At the time, the Bureau expected the rule to “lead to the approval of approximately 22,000 additional, affordable mortgages every year,” and that Americans with medical debt on their credit reports could see scores increase by 20 points on average.
However, the idea drew pushback from GOP lawmakers. In a letter to then-CFPB Director Rohit Chopra in August, several Republicans on the House Financial Services Committee warned this could “weaken the accuracy and completeness of consumer credit reports.”
Upon being finalized, it was swiftly challenged by the Consumer Data Industry Association and Cornerstone Credit Union League, who filed a lawsuit against the CFPB over the rule. The pair were later joined by the Trump administration and the CFPB itself, which, under new leadership, joined with the plaintiffs in opposition in April.
Nationally, Americans owe over $220 billion in medical debt, per a 2024 estimate from health policy-focused research group KFF. However, a study by the CFPB found that medical debt is an unreliable indicator of overall creditworthiness, given this is often incurred due to unexpected health emergencies.
“Medical debt may be less predictive of whether a consumer will pay a future loan, because medical debts can occur and are collected through unique circumstances and practices,” the Bureau wrote in a separate 2024 study. “For example, consumers often have limited ability to control the timing and types of medical services that are required.”
“I understand the rationale behind including medical debt in credit reports,” said Matt Schulz, chief consumer finance analyst at LendingTree. “Lenders want as complete a picture as possible of the financial situation of the people that they lend to.”
“However, medical debt is a different animal from other common types of debt,” he told Newsweek. “For one, the dollars involved can be enormous. Also, medical bills often contain errors that can take a really long time to resolve because of how ridiculously complex and confusing the American healthcare and insurance businesses are.
“That means many Americans may find their credit damaged unnecessarily, and that’s a big deal.”
Bankrate Senior Industry Analyst Ted Rossman told Newsweek that, despite the ruling, voluntary changes adopted by major credit bureaus over the past few years – which worked to remove many forms of medical collection data from credit reports – mean that the impacts on credit scores may not be catastrophic.
“In 2022 and 2023, the major credit bureaus voluntarily removed most medical debt from credit reports,” he said. “They took off paid medical collections, medical debts that had been in collections for less than a year and medical collections under $500. This removed about 70% of medical debt from credit reports.
“While this policy has been struck down by a judge, my understanding is that the voluntary changes will stick and most medical debt still won’t appear on credit reports,” he added.
What People Are Saying
Rohit Chopra, then-director of the CFPB, said in January: “People who get sick shouldn’t have their financial future upended. The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
LendingTree Chief Consumer Finance Analyst Matt Schulz told Newsweek: “There’s no question that this will hurt some Americans’ credit scores in the long run.”
“There’s very little in life that is more expensive than having crummy credit. It can cost you literally tens of thousands of dollars or more over the course of your life in the form of higher interest rates and fees on mortgages, credit cards, auto loans and other things. It can push your insurance premiums higher and even keep you from getting that apartment you’re looking for. For many Americans, even a relatively small dip in their credit score can be significant because it could drop them from very good to good credit, for example, or from good to fair. Those things matter a lot.”
Bankrate Senior Industry Analyst Ted Rossman told Newsweek: “If you have medical debt and you can’t pay it off right away, try to work out a payment plan with the doctor or hospital. This is likely going to be a lot more affordable and better for your credit score than if you finance it with a credit card.”
“Many doctors and hospitals offer low- or no-interest payment plans and these have the added advantage of keeping the debt as medical debt (which is treated more favorably by the credit bureaus than credit card debt),” he added.
What Happens Next?
Judge Jordan’s ruling is unlikely to be challenged or appealed by the CFPB, given the Bureau’s decision to side with the plaintiffs and its current leadership, now overseen by Trump appointee Russell Vought.