The Consumer Financial Protection Bureau (CFPB) is currently seeking to revoke a Biden-era rule that would prohibit medical debt from appearing on consumer credit reports. This rule, which was introduced by the Biden administration, aimed to remove an estimated $49 billion in medical debt from the credit reports of around 15 million Americans.
- The rule would have prevented credit reporting agencies (CRAs) from including medical debt in consumer credit reports.
- The rule would have barred lenders from considering medical debt when making lending decisions.
- The rule would have ensured that consumers would still be liable for the debt, but it could no longer be used to deny them credit.
The trade groups who opposed the rule argued that it exceeded the CFPB’s statutory authority under the Fair Credit Reporting Act (FCRA). This federal law allows CRAs to report medical debt as long as the information is coded to protect details about the consumer’s health conditions or providers. The CFPB agreed with this argument and asked the judge to declare the rule unlawful and vacate it. The agency stated that the Medical Debt Rule “contradicts that provision by prohibiting CRAs from furnishing medical debt information to creditors—even coded information.”
The decision to withdraw support for the rule was welcomed by Dan Smith, president and CEO of the Credit Data Industry Association (CDIA), which represents major credit bureaus, including Equifax, Experian, and TransUnion, as well as regional bureaus and background check firms. Smith praised the CFPB’s decision, stating that it “will have a positive impact on the credit reporting industry as a whole.”
However, not everyone is pleased with the CFPB’s decision. In February, a group of individuals with medical debt, the New Mexico Center on Law and Poverty, and the legal aid group Tzedek DC filed a lawsuit to intervene in the case. They argued that the CFPB’s change in position affects the request to intervene. On April 30, Judge Jordan ordered all parties to submit supplemental briefs addressing the impact of the CFPB’s change in position on the request to intervene. The briefs are due by May 7. The resolution to repeal the rule was introduced in March by Senator Mike Rounds (R-S.D.), with support from Senate Banking Committee Chairman Tim Scott (R-S.C.), and Sens. Mike Crapo (R-Idaho), Bill Hagerty (R-Tenn.), and Cynthia Lummis (R-Wyo.).
The repeal of the rule will likely have significant implications for consumers who carry medical debt. While the rule would have removed an estimated $49 billion in medical debt from credit reports, consumers would still owe the debt. However, this rule change could have an impact on the way lenders consider medical debt when making lending decisions.
“Medical debt can be a significant barrier to credit access, especially for low-income and marginalized communities. The repeal of this rule will not address the underlying issues of medical debt, but it may provide a temporary reprieve for consumers who have been negatively impacted by the rule’s provisions.” — Senator Mike Rounds
Ultimately, the repeal of the Medical Debt Rule will be reviewed in court. The case will likely be decided on the basis of whether the rule exceeded the CFPB’s statutory authority under the FCRA. The outcome will have significant implications for the credit reporting industry and consumers who carry medical debt.
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