CFPB Backs Credit Bureaus in Bid to Strike Down Medical Debt Rule

The Biden-era rule would prohibit medical debt from appearing on consumer credit reports.

The Consumer Financial Protection Bureau building in Washington on Oct. 31, 2023. Madalina Vasiliu/The Epoch Times

The Consumer Financial Protection Bureau (CFPB) is seeking to revoke a Biden-era rule that would prohibit medical debt from appearing on consumer credit reports.

In a joint motion filed on April 30, the agency sided with two trade groups—the Consumer Data Industry Association (CDIA) and the Cornerstone Credit Union League—asking Judge Sean Jordan of the Eastern District of Texas to vacate the rule. The motion was unsealed on May 1.

Finalized in the closing days of the Biden administration, the medical debt rule was set to take effect in March but was delayed after the trade groups sued the CFPB on the same day it was issued. The plaintiffs secured a 90-day stay from the judge, pushing the implementation date to June 15.

Had it taken effect, the rule would have banned credit reporting agencies (CRAs) from including medical debt in consumer credit reports and barred lenders from considering medical debt when making lending decisions. According to the Biden administration, the rule would have removed an estimated $49 billion in medical debt from the credit reports of about 15 million Americans. Consumers would still owe the debt, but it could no longer be used to deny them credit.

In their lawsuit, the trade groups argued that the rule exceeded the CFPB’s statutory authority under the Fair Credit Reporting Act, a federal law that, in part, allows CRAs to report medical debt as long as the information is coded to protect details about the consumer’s health conditions or providers.

In the April 30 motion, the now-Trump-led CFPB agreed with that argument and asked the judge to declare the rule unlawful and vacate it.

“The Medical Debt Rule contradicts that provision by prohibiting CRAs from furnishing medical debt information to creditors—even coded information,” the agency stated in the filing.

Dan Smith, president and CEO of the CDIA—which represents major credit bureaus including Equifax, Experian, and TransUnion, as well as regional bureaus and background check firms—praised the CFPB’s decision to withdraw support for the rule.

“The rule would have prohibited medical debt on credit reports and prohibited lenders from considering complete and accurate information when making lending decisions,” Smith said in a statement. “Information about unpaid medical debts is an important element in assessing a consumer’s ability to pay.”

In February, in the wake of the presidential transition, the New Mexico Center on Law and Poverty, legal aid group Tzedek DC, and two individuals with medical debt filed to intervene in the case. On April 30, Judge Jordan ordered all parties to submit supplemental briefs addressing how the CFPB’s change in position affects the request to intervene. The briefs are due by May 7.

Separately, Senate Republicans have tried to repeal the medical debt rule under the Congressional Review Act, which allows Congress to nullify any rule finalized within 60 legislative days by a simple majority vote. If repealed through this process, the CFPB would be barred from issuing a “substantially similar” rule in the future, according to a congressional report.

The resolution to repeal was introduced in March by Sen. 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.).