Authored by Tom Ozimek via The Epoch Times,
A federal judge in Texas has invalidated a Biden-era regulation that would have prohibited medical debt from being reported on credit reports.
In a July 11 order, U.S. District Judge Sean Jordan determined that the Consumer Financial Protection Bureau (CFPB) had exceeded its authority when it finalized the rule in January, just before President Donald Trump’s second term began.
According to the Fair Credit Reporting Act, credit reporting agencies can include medical debt information in credit reports as long as the data is coded to hide details like the medical provider’s identity or treatment nature. Lenders can consider this coded medical debt information when making lending decisions.
However, during the Biden administration, the CFPB introduced a rule that prohibited credit reporting agencies from disclosing any medical debt information to lenders for credit assessments. The agency argued that medical debt is not a reliable indicator of a borrower’s creditworthiness and should not impact lending decisions.
Two trade associations—the Cornerstone Credit Union League and the Consumer Data Industry Association—sued the CFPB, claiming that the medical debt rule exceeded the agency’s statutory authority and conflicted with the Fair Credit Reporting Act’s allowance for coded medical debt data.
After Trump assumed office, the CFPB, under new leadership, agreed with the plaintiffs that the medical debt rule was unlawful. Both parties proposed a consent judgment to nullify the rule completely and send the issue back to the CFPB for further review.
Nevertheless, the proposed agreement faced opposition from several intervenors, including two individuals with medical debt and two advocacy groups. The individuals—a Texas truck driver with medical debt from cancer treatment and a D.C. resident with debt from their child’s medical care—argued that repealing the rule would remove important protections for them. The advocacy organizations—the New Mexico Center on Law and Poverty and Tzedek DC—stated that repealing the rule would force them to redirect resources to help clients with medical debt issues instead of other legal matters.
The judge, however, concluded that the proposed consent decree did not impose legal obligations on the intervenors and that they did not have an enforceable legal right to the rule itself. He ruled that the Fair Credit Reporting Act explicitly permits credit reporting agencies to report coded medical debt information and that the CFPB’s rule had effectively altered federal law, exceeding the agency’s statutory authority.
“After careful consideration of the parties’ arguments, Defendant-Intervenors’ objections, and the relevant law, the Court finds that the proposed consent judgment is fair, adequate, and reasonable,” wrote the judge in his opinion.
The Epoch Times has contacted the intervenors’ counsel for comment.
Under the Biden administration, the CFPB maintained that medical debt has limited predictive value regarding a borrower’s ability to repay other debts. The agency also expressed concerns that medical debt listed on credit reports led to numerous denied mortgage applications, even for borrowers capable of repayment.
“People who get sick shouldn’t have their financial future disrupted,” stated then-CFPB director Rohit Chopra on Jan. 7. “The CFPB’s final rule will eliminate a special exemption that has enabled debt collectors to exploit the credit reporting system to pressure individuals into paying medical bills they may not owe.”
In a 2022 report, the CFPB highlighted the “complex and burdensome” nature of the U.S. medical billing system. The agency discovered that medical bills often arise from emergencies or unforeseen events, have unclear pricing, and involve intricate insurance regulations. Patients frequently do not learn the total costs until after treatment and may feel compelled to accept any charges, especially those with chronic illnesses or urgent health issues, to secure necessary care.
Loading…