Biden-Era Rule Banning Medical Debt on Credit Reports Scrapped by Judge
TL/DR –
A federal judge in Texas rejected a rule established during the Biden administration that would have prevented the inclusion of medical debt on credit reports, stating that it exceeded the Consumer Financial Protection Bureau’s authority under the Fair Credit Reporting Act. The rule, which was finalized in January, would also have prohibited lenders from using a person’s medical debt history to inform lending decisions. The decision to overturn the rule has been met with criticism from advocates who claim it eliminated a vital consumer protection, while industry groups argue that the rule could have led to lenders receiving an “inaccurate and incomplete picture” when making lending decisions.
Medical Debt Rule Scrapped; Millions of Americans at Risk
A federal judge in Texas recently overturned a Biden-era rule intending to prevent the inclusion of medical debt on credit reports. The decision, described as a significant blow to consumers, was granted on July 11 in response to a request from President Trump’s administration and two financial industry groups.
The medical debt rule was intended to ban medical debt on credit reports and prohibit lenders from using a person’s medical debt history in their lending decisions.
However, industry groups rallied against the rule, leading the Trump-appointed leadership of the Consumer Financial Protection Bureau (CFPB) to file a joint motion to vacate the medical debt rule.
In agreement with the trade groups, Judge Sean Jordan argued that it was “fair, adequate and reasonable” to discard the medical debt rule due to it exceeding the authority of the CFPB under the Fair Credit Reporting Act.
Increased Medical Debt Foreseen
According to Patricia Kelmar, senior director of health care campaigns at the U.S. PIRG Education Fund, the decision could lead to increased medical debt errors on credit reports. She highlighted that medical bills accounted for more than half of debt collection on consumers’ credit records, as per a 2022 report from the CFPB.
Kelmar warned, “The problem is still here and will likely get worse.” She pointed out the plight of the 15 million Americans with medical debt on their credit reports penalized with lower credit scores due to ongoing disputes or reporting errors.
Conversely, industry groups such as the Consumer Data Industry Association, celebrated the decision, arguing that unpaid medical debts are crucial for assessing a consumer’s ability to pay.
The verdict comes amidst increasing concerns about health insurance coverage for millions of Americans, with the Trump’s tax cut and spending law estimated to cut about $1 trillion from Medicaid and Affordable Care Act insurance plans, potentially eliminating insurance coverage for 11.8 million individuals over the next decade, as per the Congressional Budget Office.
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