Judge Strikes Down CFPB Rule on Medical Debt
A federal judge in Texas recently ruled against a Biden administration initiative aimed at erasing medical debts from credit reports, which was overseen by the Consumer Financial Protection Bureau (CFPB).
Judge Shawn Jordan, a Trump appointee from the Eastern District of Texas, decided on Friday that the CFPB overstepped its authority. He pointed out that according to the Fair Credit Reporting Act, the agency lacks the power to remove medical debts from credit reports, which are crucial for consumer reporting.
The CFPB had argued that eliminating medical debt from credit reports could potentially uplift the credit scores of about 15 million families. They claimed a typical increase might average around 20 points. However, the judge’s ruling questioned the CFPB’s rationale, asserting that medical collections, often used in mortgage application decisions, offer a poor reflection of a borrower’s repayment capability.
Interestingly, three major credit reporting agencies—Experian, Equifax, and Transunion—had already signaled last year that they would stop including medical collections under $500 in credit reports.
The CFPB’s proposed rules aimed to ensure that all medical debts would be excluded from credit reports and prevented lenders from referencing such debt. Interestingly, the agency projected that this change could lift around $49 million in medical debt off the credit records of millions of Americans.
Shockingly, they noted that nearly one in five Americans have some form of medical debt in collections, while over half of the collection entries on credit reports are medical-related. This situation is particularly troubling for communities of color. According to the CFPB, 28% of Black individuals and 22% of Latinos in the U.S. carry medical debt.
This agency, created by Congress following the 2008 financial crisis, was designed to oversee various sectors within consumer finance, including credit cards and debt collection. Earlier this year, there were calls from the Trump administration to significantly curtail the bureau’s functions, which sparked further debates about its role and effectiveness.
