Federal judge halts CFPB rule to remove medical debt from credit reports
A federal judge has blocked a rule issued by the Consumer Financial Protection Bureau in January that would have removed unpaid medical debt from the credit reports of about 15 million consumers.
The ruling, issued Friday by Judge Sean Jordan of the U.S. District Court of Texas' Eastern District, orders that the rule be vacated because of the court's finding that the CFPB exceeded its authority under the Fair Credit Reporting Act. After the CFPB issued the rule in January, the Cornerstone Credit Union League and the Consumer Data Industry Association, a trade group for the credit reporting industry, had filed a lawsuit to halt it.
The court's decision could impact the roughly 15 million people who carry about $49 billion in medical debt on their credit reports, a burden that can influence whether lenders decide whether to extend loans like mortgages or auto loans to consumers. At the time when the CFPB issued the rule, the agency noted that medical debt is a poor predictor of whether a consumer will make good on other types of loans.
"It doesn't show whether they are likely to pay their mortgage or other debts because there are a lot of inaccuracies and they have a lot of disputes," Julie Margetta Morgan, former associate director of research, monitoring and regulations at the Consumer Financial Protection Bureau, told CBS MoneyWatch.
The CFPB's rule had been hailed by consumer advocates for helping to protect consumers who can get tangled up in complicated issues around medical debt, such as problems with insurance reimbursements, denials and other snafus.
"By pulling back on this rule, the court has eliminated the CFPB's ability to provide that kind of relief to people and give this certainty that they can work with their health care provider to make sure the bills they are paying are accurate, without being hounded by a debt collector," added Margetta Morgan, who currently serves as the president of The Century Foundation, a left-leaning policy think tank.
Here's what to know.
What does the ruling say about medical debt and credit reports?Jordan ruled that the "medical debt rule exceeds the [CFBP]'s statutory authority by violating the plain text" of the Fair Credit Reporting Act, or FCRA, a 1970 law that oversees credit reporting.
"The rule exceeded the CFPB's statutory authority because FCRA explicitly allows credit reporting agencies to report, and creditors to obtain and use, information about medical debt that is properly coded to obscure the name of the provider and the nature of the services provided," Dan Smith, CEO of the Consumer Data Industry Association, said in a July 11 statement.
Had the CFPB rule gone into effect?No, the rule hadn't yet gone into effect, according to Jordan's ruling.
While the rule was slated to take effect about 60 days after it was published, the CFPB asked for a three-month delay after the Trump administration put new leadership at its helm, the decision noted. That request was granted by the court as the lawsuit to block the rule moved forward.
Could the court decision be appealed?It's unclear. While the CFPB could appeal in theory, the agency is now essentially in a state of limbo.
In February, President Trump appointed White House Office of Management and Budget Director Russ Vought as acting director of the CFPB. Days after his appointment, Vought issued a memo to CFPB staff that directed employees not to issue any proposed or formal rules, stop pending investigations and not open new investigations, among other actions.
What steps are available to consumers with medical debt?In some states, consumers can rely on govrernment protections to help them with medical debt and their credit reports, Margetta Morgan noted. Colorado and New York both enacted laws in 2023 that provide some protections for consumers who have medical debt, for instance.
And last year, Experian, Equifax and TransUnion, the three national credit reporting agencies, said that they were removing medical collections debt under $500 from U.S. consumer credit reports.
"From my experience reading these accounts from consumers, there are a lot of flaws in our medical billing and reporting system, and it lands in the consumer's lap and they are supposed to try to figure out how to deal with it," Margetta Morgan said. "I would make sure the bills you receive are accurate," as well as to check whether your insurer is paying the correct amount, she added.
Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
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