That's it: measure to eliminate medical debt from credit cards is halted
A change that promised to benefit millions of Americans with medical debt has been blocked by a federal judge in Texas. The measure, promoted by the Consumer Financial Protection Bureau (CFPB), sought to remove medical debt from credit reports. However, Judge Sean Jordan, appointed by Donald Trump, ruled that the regulation exceeded the agency’s legal authority.
What did the CFPB propose?
The CFPB argued that medical debt is not a reliable indicator of a person’s ability to repay. Unlike other types of debt, medical obligations are often not voluntary, but rather the result of emergencies or necessary treatments. In fact, the agency’s director noted that many Americans have been denied mortgage applications because of medical debt, despite having a strong payment history in other areas.
The CFPB’s proposal included:
Eliminating all unpaid medical debt from credit reports.
Prohibiting lenders from using this information when making financial decisions.
It was estimated that the measure would have removed $49 billion in medical debt from the credit histories of 15 million people, raising their credit scores by an average of 20 points.
The judge’s decision
Judge Jordan argued that the Fair Credit Reporting Act does not grant the CFPB the authority to eliminate entire categories of information from credit reports. According to his interpretation, the agency’s role is to oversee the accuracy and proper use of information, not to decide which types of debt may be included.
This decision represents a significant setback for the Biden administration’s policy, which had strongly supported the rule.
What have the credit bureaus done?
Although the ruling invalidates the federal rule, the three major credit bureaus—Equifax, Experian, and TransUnion—had already begun implementing certain changes on their own. Since last year, they agreed to remove medical debts under $500 from credit reports. However, this voluntary decision does not cover larger debts nor does it prevent lenders from considering other medical accounts that remain on file.
Who is affected?
The burden of medical debt disproportionately affects vulnerable communities. According to CFPB data:
20% of Americans have at least one medical debt on their credit history.
More than 50% of collection accounts on credit reports are related to medical expenses.
The issue impacts racial minorities more heavily:
28% of African Americans have medical debt.
22% of Latinos.
Compared to 17% of White Americans.
What’s next?
Although this court decision prevents the CFPB from implementing its rule nationwide, the debate over the fairness of the credit reporting system is far from over. Consumer advocacy groups and progressive lawmakers have indicated they will seek alternative paths to protect citizens from the negative consequences of medical debt.
Conclusion
This ruling represents a victory for those who support a more limited interpretation of the federal government’s role in financial regulation. However, it also leaves millions of Americans unprotected from credit consequences stemming from debts that are often beyond their control.
In the meantime, it is crucial for consumers to stay informed and seek tools to monitor and improve their credit history. Financial education remains one of the strongest defenses against injustices within the system.
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