A federal judge in Texas has struck down a Biden administration rule that aimed to erase $49 billion in medical debt from credit reports — a move that would have affected some 15 million Americans.
U.S. District Judge Sean Jordan, a Trump appointee, ruled Friday that the Consumer Financial Protection Bureau (CFPB) exceeded its authority under the Fair Credit Reporting Act — siding with industry groups and Republican officials who challenged the rule.
Finalized in January, the CFPB rule would have removed medical debt from credit reports and barred lenders from factoring it into loan decisions, including banning the use of medical devices like wheelchairs as collateral. It also would have boosted credit scores by an average of 20 points and enabled about 22,000 additional mortgage approvals annually, according to the CFPB.
The policy was set to take effect at the end of July but faced opposition after GOP-led states joined credit reporting agencies in challenging it.
Jordan’s decision highlighted that state laws prohibiting coded medical information on credit reports are preempted by the federal act.
“Every major substantive provision of the Medical Debt Rule” exceeded the CFPB’s authority, Jordan wrote, according to CNN.
The ruling came after lawsuits from the Consumer Data Industry Association and ACA International, which argued the rule would distort lenders’ assessments.
“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,” said Dan Smith, president and CEO of the Consumer Data Industry Association, Axios reported.
The decision reflects Republican lawmakers’ earlier concerns, voiced in a letter to then-CFPB Director Rohit Chopra, that the rule would undermine credit accuracy and increase financial risks, particularly for lower-income Americans.
Industry efforts since 2022 have already reduced the impact, with Equifax, Experian, and TransUnion removing nearly 70% of medical debt, including paid-off bills and those under $500, while extending the grace period for unpaid debts to one year.
Consumer groups and the American Medical Association contend that medical debt is a poor predictor of loan repayment ability, often stemming from one-time hospital stays or billing errors. The Biden rule was paired with a North Carolina plan offering extra Medicaid funds to hospitals forgiving debt for about 2 million state residents.
With the current administration not defending the policy, an appeal seems unlikely, leaving medical debt tied to broader economic concerns, as about 1 in 12 U.S. adults carries unpaid bills of at least $250, per the Peterson Center on Healthcare and KFF.
The ruling could have long-term implications for federal regulatory power and the future of medical debt reform, as an estimated 23 million Americans currently hold medical debt, according to KFF.