Biden's rule to bar medical debt from credit reports could soon end. What to know
The Consumer Financial Protection Bureau is seeking to erase a Biden-era rule that would ban the inclusion of medical debt on credit reports.
The consumer protection agency sided with two trade groups − the Consumer Data Industry Association and Cornerstone Credit Union League − in an April 30 motion that asked a federal judge in Texas to vacate the medical debt rule.
The medical debt rule, finalized in the waning days of the Biden administration, would ban medical debt on credit reports and prohibit lenders from using a person's medical debt history to make lending decisions.
The rule was scheduled to take effect in March, but the two trade groups sued the CFPB to halt the rule, and a U.S. District Court judge in the Eastern District of Texas issued a 90-day stay, effectively delaying the rule's start date to June 15.
Rather that defend the rule, the CFPB joined the two trade groups in a joint motion that asked U.S. District Court Judge Sean Jordan to vacate the medical debt rule "because it exceeds the bureau’s statutory authority."
Consumers fight to keep medical debt rule
Consumer groups have sought to intervene in the case to defend the medical debt rule. In an order on April 30, Jordan said he would give the consumer groups and the trade groups and the CFPB another week to file legal paperwork before deciding next steps.
The CFPB also is the subject of another court challenge from its employees who are fighting the Trump administration's effort to effectively close the consumer protection agency. The fight over the CFPB's future casts doubt on efforts to rein in bank overdraft fees and oversight of digital payments apps.
Consumers advocates worry the CFPB's choice to abandon the medical debt rule could strip away an important layer of consumer protection.
"I'm disappointed for the 15 million Americans who have medical bills on their credit reports and have to suffer the consequences of poor credit scores because of it," said Patricia Kelmar, senior director of health care campaigns at the U.S. PIRG Education Fund.
However, the Consumer Data Industry Association, which represents credit bureaus, cheered the CFPB's choice to not defend the medical debt rule.
The medical debt rule would have "prohibited lenders from considering complete and accurate information when making lending decisions," said Dan Smith, president and CEO of the association. "Our member companies remain committed to providing complete and accurate information to support lenders and help consumers access financial products."
Medical bills accounted for more than half of debt collection on consumers' credit records, according to a 2022 report from the CFPB.
The three largest credit reporting companies already have removed several forms of debt from credit reports: paid medical debts, unpaid medical debts less than a year old and medical debt less than $500.
Even if the medical debt rule doesn't survive this court challenge, Kelmar said there is bipartisan support in the concept of sparing consumers from credit demerits due to old medical bills.
"Medical debt is a nonpartisan issue," Kelmar said. "It affects middle income Americans more (because) they have to pay more in out-of-pocket costs."