Judge Overturns CFPB Rule Excluding Medical Debt From Credit Reports

A federal judge has overturned a recent rule by the Consumer Finance Protection Bureau (CFPB) that aimed to exclude unpaid medical bills from Americans' credit reports. This decision, made by Judge Sean Jordan of the US District Court of Texas’ Eastern District, has significant implications for individuals with medical debt and their ability to secure loans, including mortgages.

The CFPB's rule, announced just before President Joe Biden left office in January, was intended to remove unpaid medical bills from credit reports. This change was expected to result in the approval of roughly 22,000 additional mortgages each year. The rule would have raised the credit scores of individuals carrying medical debt by an average of 20 points, removed $49 billion in medical bills from credit reports, and prohibited lenders from considering this type of debt in most loan decisions.

Judge Jordan's ruling found that the CFPB exceeded its authority with the rule, citing the Fair Credit Reporting Act. He stated that only Congress has the power to write law. The ruling was supported by two industry associations that had filed suit against the rule, as well as the Trump administration, which joined the suits after his second term began. Jordan, a Trump-appointed judge, concluded that the CFPB's actions were beyond its legal scope.

The decision is likely to make it more challenging for many people to obtain mortgages or other loans, as medical debt will continue to be a factor in their credit reports. The CFPB had argued that medical debt often includes mistakes that can artificially impact credit scores and that medical debt is not a reliable indicator of a person's ability to repay other loans. Opponents of the rule, however, contended that excluding medical debt from credit reports would undermine the credit scoring process.

CFPB Director Rohit Chopra had emphasized the importance of the rule, stating, “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.” This ruling effectively reverses that effort, leaving medical debt as a factor in credit reports and potentially affecting the financial futures of many individuals.