Credit scores at risk: US Judge reverses Biden era medical debt rule; millions could be impacted
A Texas federal judge has reversed a BIden era rule that excluded medical debt from the credit reports, with a potential impact on 15 million Americans.
The rule that came into effect this January, did not do away with the debt altogether, rather changed the method how credit scores of individuals would be calculated.
It would have removed around $50 billion of medical debt from the credit reports of 15 million people.
US district judge Sean Jordan, appointed by President Donald Trump in 2019 during his first term, observed in his ruling that the Fair Credit Reporting Act does not allow the Consumer Financial Protection Bureau (CFPB) to remove medical debt from reports and that it exceeded its authority.
The CFPB had introduced new credit reporting rules in January, just before President Joe Biden left office.
The independent agency estimated that the changes could generate an additional 22,000 mortgages annually and increase Americans' credit scores by an average of 20 points.
Although the judge has blocked the implementation of these changes, he clarified that the CFPB is still allowed to "encourage" lenders to consider other categories of information when assessing creditworthiness.
Since taking office for the second time, Trump has moved to eliminate what his department of government efficiency terms "waste, fraud, and abuse" across federal agencies. One of the first to come under scrutiny was the consumer protection agency, which quickly became a target and faced significant layoffs
The CFPB had made the changes in January before President Joe Biden left office.
The independent agency had calculated that the new credit reporting rules would result in an additional 22,000 mortgages every year and boost Americans' credit scores by an average of 20 points.
Although the judge has prevented the advancement of these changes, he noted that the bureau can "encourage" creditors to use other categories of information.
Dan Smith, head of the Consumer Data Industry Association, welcomed the decision, calling canceling the reversal of rule a move in the right direction.
'This is the right outcome for protecting the integrity of the system,' Smith wrote in a statement, according to Reuters.
The decision comes just a week after Trump signed a massive spending and tax bill that includes sweeping cuts to Medicaid. New work requirements included in the law could strip millions of their coverage.
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