Court nixes leaving medical debt off credit reports
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A federal judge in Texas vacated a Biden-era rule that would have removed medical debt from consumers' credit reports, agreeing with Trump administration and credit industry arguments that the policy exceeded regulators' authority.
Why it matters: The rule, finalized by the Consumer Financial Protection Bureau in January, would have wiped an estimated $49 billion from some 15 million Americans' credit reports and prevented lenders from using medical information in their decisions.
- Under the Trump administration, the CFPB reversed its position and joined credit reporting groups in challenging the rule, which was due to take effect at the end of July.
Driving the news: U.S. District Court Judge Sean Jordan, a Trump appointee, ruled on Friday that the policy exceeded the CFPB's authority because it essentially rewrote the Fair Credit Reporting Act.
- State laws that prohibit credit reporting agencies from including coded medical information on reports are preempted by the federal act, Jordan wrote.
Zoom in: Leading credit reporting agencies like Experian, Equifax, and TransUnion had argued the Biden rule could have given lenders an inaccurate and incomplete picture when making loans.
- "Information about unpaid medical debts is an important element in assessing a consumer's ability to pay. This is the right outcome for protecting the integrity of the system," Dan Smith, president and CEO of the Consumer Data Industry Association, said in a statement.
- Major reporting agencies in 2022 voluntarily agreed to take certain medical debts off the reports, including those under $500.
- Because the administration is not defending the Biden rule, prospects for an appeal are uncertain.
Medical debt is closely linked to Americans' broader economic concerns, with about 1 in 12 U.S. adults having unpaid medical bills of at least $250, according to the Peterson Center on Healthcare and KFF.
- Consumer groups say private equity's expanding role in billing, tracking and collecting payments is exacerbating the problem. The American Medical Association has argued that medical debt isn't an accurate barometer of people's ability to repay other loans, because most bills are a one-time or short-term expense from a hospital stay or accident.
The Biden administration rule was part of a response that also included approving a North Carolina plan that gave hospitals in the state extra Medicaid funds if they forgave the medical debt of about 2 million residents.
- Keeping debt from accumulating is another story, because it requires addressing high U.S. health care prices and cost-management tools like insurance deductibles and co-pays.
