Report Says Medical Debt To Stay On Credit Reports

Medical debt will remain on credit reports after a federal judge vacated a Biden-era rule. The Consumer Financial Protection Bureau rule would have removed the debt, however, the judge found that the rule exceeded the bureau’s authority under the Fair Credit Reporting Act. The ruling — handed down by U.S. District Court of Texas’ Eastern District Judge Sean Jordan on Friday — was a major blow to the Consumer Financial Protection Bureau (CFPB), which has fought against medical debt as a metric of credit worthiness.

In the waning days of the Biden administration in January, the federal banking and financial services watchdog introduced a rule to disallow medical debts from appearing on American credit reports in effort to keep that information from influencing lenders that consider medical expenses to assess borrowers’ merit.

An estimated 49-billion-dollars in medical bills would have been removed from the credit reports of about 15 million people. It would have also banned lenders from using certain medical information in loan decisions.

• Previous Rule:The CFPB had finalized a rule that would have prevented credit reporting agencies from including most medical debt on credit reports, and would have prohibited lenders from using medical debt information in credit decisions. 
• Judge’s Decision:U.S. District Judge Sean Jordan vacated the rule, stating that the CFPB exceeded its authority under the Fair Credit Reporting Act (FCRA). 
• Impact of the Ruling:The decision allows medical debt to be included on credit reports, potentially affecting the credit scores of millions of Americans. 
• Industry Concerns:Financial industry groups argued that removing medical debt from credit reports would make it more difficult for lenders to assess risk, according to the Consumer Data Industry Association. 
• CFPB’s Stance:The CFPB had argued that medical debt is not a good indicator of creditworthiness and that its inclusion on credit reports can be unfairly punitive. 
• Potential Consequences:The ruling may lead to increased difficulty in obtaining loans, mortgages, and other financial products for individuals with medical debt on their credit reports. 
• No Immediate Effect:The rule was not yet in effect when the judge’s decision was made, as a stay had been put in place while the lawsuit proceeded

Credit scores factor into a person’s ability to rent or buy a home, secure a car loan, and other major financial decisions that can determine one’s socioeconomic footing.

In its January order the CFPB cited its 2014 research which found that medical debt was not a good indicator as to whether or not a borrower would default on loans, and therefore, was not a necessary inclusion on credit reports.