Medical debt remains on credit reports after Biden-era rule tossed by judge

USA Today

17 hours ago

Consumers were dealt a blow after a federal judge in Texas tossed out a Biden-era rule that would have banned the inclusion of medical debt on credit reports.
In a move that advocates told USA TODAY eliminates a vital consumer protection, U.S. District Judge Sean Jordan on July 11 granted a request from President Donald Trump's administration and two financial industry groups to vacate the medical debt rule.
The medical debt rule, finalized in January before former President Joe Biden left office, would've banned medical debt on credit reports and prohibited lenders from using a person's medical debt history to make lending decisions.
The rule was scheduled to take effect in March, but the two trade groups sued the Consumer Financial Protection Bureau to halt the rule, and Jordan issued a stay, delaying the rule's start date. In late April, the Trump-appointed CFPB leadership opted not to oppose the lawsuit and filed a joint motion with the financial industry groups – the Consumer Data Industry Association and Cornerstone Credit Union League – to ask the judge to vacate the medical debt rule.
Jordan, appointed during Trump's first administration, agreed with the trade groups that it was "fair, adequate and reasonable" to vacate the medical debt rule because it exceeded the CFPB's authority under the Fair Credit Reporting Act.
Medical debt 'will likely get worse'
Patricia Kelmar, senior director of health care campaigns at the U.S. PIRG Education Fund, said rule was necessary due to protect consumers from medical debt errors on credit reports. Medical bills accounted for more than half of debt collection on consumers' credit records, according to a 2022 report from the CFPB.
"The problem is still here and will likely get worse," Kelmar said. "Medical debt on credit reports is disputed nearly three times as frequently as credit card debt."
She said many of the 15 million Americans with medical debt on their credit reports are "penalized with lower credit scores, not because they owe the bill, but because they are still fighting it, or the hospitals reported it wrong."
But industry groups cheered the decision.
The medical debt rule would've potentially dealt lenders an "inaccurate and incomplete picture when making lending decisions," Dan Smith, president and CEO of the Consumer Data Industry Association, said in a statement.
"Information about unpaid medical debts is an important element in assessing a consumer's ability to pay," Smith said. "This is the right outcome for protecting the integrity of the system."
Paid medical debts, unpaid medical debts less than a year old and medical debts less than $500 already have been removed from credit reports by the three largest credit reporting companies. However, with the medical debt rule scrubbed, consumers can still expect larger medical debts to appear on credit reports.
The decision comes as the Trump's sweeping tax cut and spending law could jeopardize health insurance coverage for millions of Americans in the coming years.
The law would cut about $1 trillion from Medicaid and Affordable Care Act insurance plans, eliminating insurance coverage for 11.8 million people over the next decade, according to the nonpartisan Congressional Budget Office.
Another 5 million could lose health insurance because the law doesn't extend Biden's COVID-19 pandemic-era tax credits that made ACA plans cheaper for consumers, according to a previous CBO analysis.