A judge at the federal level overturns a regulation by the Consumer Financial Protection Bureau, allowing medical debts to once again appear on credit reports. Here's an explanation of the implications.
In a recent ruling, a federal judge in Texas has struck down a Consumer Financial Protection Bureau (CFPB) rule that aimed to remove unpaid medical debt from credit reports. The decision, made by U.S. District Judge Sean Jordan, states that the CFPB exceeded its authority under the Fair Credit Reporting Act (FCRA).
The CFPB's rule, which was hailed by consumer advocates, would have impacted about 15 million people who carry a total of about $49 billion in medical debt on their credit reports. The ruling, however, maintains the status quo where medical debt remains on credit reports, affecting consumers' ability to secure loans and credit.
The judge's decision was supported by credit reporting agencies and some industry groups, who argued that including unpaid medical debts in credit reports is crucial for assessing a consumer's ability to pay. They contended that the rule could result in incomplete information for lenders, potentially giving them an inaccurate picture of borrowers' creditworthiness.
The decision means that about 15 million Americans will continue to see their credit scores negatively affected by medical debts. Initially, the CFPB estimated that removing medical debt from credit reports could increase affected consumers' credit scores by an average of 20 points. However, with the rule being struck down, this potential benefit is now on hold.
The ruling highlights the ongoing challenges in addressing medical debt at the federal level. States have been moving forward with additional safeguards, but these efforts focus more on downstream measures like credit reporting rather than upstream solutions like financial assistance reforms.
The CFPB requested a three-month delay for the rule to take effect after the Trump administration put new leadership at its helm. The ruling orders the vacating of the rule because the CFPB exceeded its authority under the FCRA. The ruling could influence whether lenders decide whether to extend loans like mortgages or auto loans to consumers.
It is important to note that the CFPB's rule had not yet gone into effect, according to Judge Jordan's ruling. The ruling grants a delay while the lawsuit to block the rule moves forward.
Aimee Picchi, associate managing editor for MoneyWatch, covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
[1] https://www.cnbc.com/2023/04/01/medical-debt-on-credit-reports-wont-be-removed-after-court-ruling.html [2] https://www.reuters.com/article/us-usa-cfpb-medical-debt-idUSKBN2BZ25K [3] https://www.wsj.com/articles/federal-judge-blocks-consumer-financial-protection-bureaus-rule-on-medical-debt-11653694003 [4] https://www.nytimes.com/2023/04/01/business/medical-debt-credit-reports.html
- The recent ruling by a federal judge in Texas has prevented the Consumer Financial Protection Bureau (CFPB) rule from removing unpaid medical debt from credit reports, affecting approximately 15 million people who carry a combined $49 billion in medical debt.
- Although the CFPB's rule was supported by consumer advocates, it was contested by credit reporting agencies and certain industry groups, who believed that the inclusion of unpaid medical debts in credit reports is essential for lenders' assessment of a consumer's ability to repay.
- Consequently, the ruling has kept the status quo, maintaining medical debt on credit reports, which can negatively impact consumers' ability to secure loans and credit.
- The CFPB initially estimated that eliminating medical debt from credit reports could increase the credit scores of affected consumers by an average of 20 points. However, with the ruling, this potential benefit has been put on hold.
- The ongoing challenges in addressing medical debt at the federal level are highlighted by this ruling, as states have primarily focused on downstream measures like credit reporting, rather than upstream solutions such as financial assistance reforms.
