US Judge Blocks Rule to Remove Medical Debt from Credit Reports

A Texas federal judge has overturned a Consumer Financial Protection Bureau (CFPB) rule aimed at removing medical debt from credit reports, effectively dealing a blow to millions of Americans, according to a report published by The Associated Press on Tuesday.

On Friday, US District Judge Sean Jordan, who was appointed by President Donald Trump, struck down the finalised Biden-era rule. 

According to the report, his ruling stated that the CFPB had overstepped its legal authority under the Fair Credit Reporting Act, which governs what consumer information can be included in credit reports.

“The CFPB is not permitted to remove medical debt from credit reports,” Judge Jordan concluded, putting a halt to a major push by the agency to tackle the burdens of healthcare-related debt.

Rule Could Have Boosted Credit Scores

The CFPB, the report said, argued that the rule would have significantly helped struggling families. According to the agency, removing medical debt could have raised credit scores for millions by about 20 points. The agency cited its own research showing that unpaid medical bills don’t reliably reflect a person’s ability to repay a loan.

“Outstanding healthcare claims are a poor predictor of an individual’s ability to repay a loan,” the CFPB reportedly said, pointing out how such debts often lead to mortgage denials.

Major Credit Bureaus Already Taking Steps

Even before this rule, the three major credit reporting agencies — Experian, Equifax, and TransUnion — had already agreed to remove medical collection accounts under $500 from consumer reports, as reported by the AP.

The CFPB’s broader rule would have gone further, banning all medical debt from appearing on credit reports and prohibiting lenders from using it during credit checks.

Impact on Communities of Color

According to the CFPB, about 15 million Americans would have seen $49 million in medical debt disappear from their credit reports. The agency also noted a racial disparity in the issue: 28% of Black Americans and 22% of Latinos carry medical debt, compared to 17% of white Americans, per the AP report.

The CFPB was formed after the 2008 financial crisis to regulate credit cards, mortgages and other consumer financial sectors. Earlier this year, efforts linked to the Trump administration sought to limit its operations significantly.

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