Americans’ unpaid medical debt will continue to appear on their credit reports after a federal judge in Texas overturned a major Biden-era Consumer Financial Protection Bureau (CFPB) rule intended to remove such debts. The decision, delivered last week by Judge Sean Jordan of the U.S. District Court for the Eastern District of Texas, marks a significant blow to a policy aimed at easing the credit burden for millions of Americans. The court found that the CFPB overstepped its legal authority under the Fair Credit Reporting Act by attempting to enact the new medical debt rule, siding with industry groups and the Trump administration which had joined the lawsuit challenging the regulation.
The CFPB rule, finalized in January before the end of President Biden’s first term, aimed to eliminate approximately $49 billion in medical debt from credit reports, impacting an estimated 15 million people. Additionally, it would have barred lenders from using certain medical data in loan decisions and banned practices such as using medical devices—including prosthetics or wheelchairs—as collateral for loans. The rule would also have stopped lenders from repossessing medical devices in the event of default.
While the CFPB argued that medical debt is not a reliable indicator of creditworthiness and that removing it could improve credit scores by an average of 20 points, the court concluded that the bureau lacked authority to implement such sweeping changes. Judge Jordan, a Trump appointee, stated in his opinion that each major part of the CFPB’s medical debt regulation exceeded what Congress had authorized the bureau to do.
The court's decision is a major win for financial industry organizations such as the Consumer Data Industry Association and ACA International, both of which had filed lawsuits opposing the rule. Industry leaders claim that excluding medical debt from credit histories could lead to inaccurate and incomplete risk assessments for lenders, undermining the integrity of the U.S. credit system. Dan Smith, president of the Consumer Data Industry Association, emphasized that unpaid medical debt is an important piece of financial information used by lenders to evaluate a consumer’s ability to repay loans.
Critics of the court's ruling argue the decision will hurt consumers, especially those with low or moderate incomes who are disproportionately burdened by healthcare expenses. Supporters of the original rule, including a coalition of 30 Democratic and independent senators, have urged transparency in how the CFPB handled the case and questioned whether there was undue influence from debt collection agencies in the decision to withdraw support for the rule in court.
While the rule would have changed how lenders assess creditworthiness, much of the financial industry had already begun to reduce the impact of medical debt on consumer credit profiles. In 2022, the three largest credit reporting agencies—Equifax, Experian, and TransUnion—collectively removed nearly 70% of medical debt from credit reports. This included eliminating records of medical debt once it was paid off and extending the time medical debt could appear on a report from six months to one year. The agencies also ceased reporting medical debts under $500 entirely.
Scoring models like FICO and VantageScore have also adjusted how they weigh medical debt in calculating credit scores, reducing its negative effect. Despite these voluntary changes by the private sector, the CFPB rule would have formalized these shifts into federal policy and extended protections further by regulating how lenders use medical data in broader financial decisions.
The now-vacated rule was expected to expand access to credit by allowing more Americans to qualify for mortgages, loans, and other financial products. According to the CFPB, approximately 22,000 additional home loans might have been approved annually under the revised system, offering a path to homeownership for many who are currently blocked by low credit scores caused by unpaid medical bills.
Yet, the court’s rejection of the CFPB rule highlights the continuing debate over the role of federal agencies in regulating credit practices and protecting consumers from the long-term financial consequences of healthcare expenses. While the administration had hoped to address what it called an outdated and inaccurate view of medical debt’s role in credit evaluation, the ruling effectively halts that plan.
The broader implication of the court’s decision may be a chilling effect on future attempts to expand consumer credit protections through agency rulemaking. It reinforces the legal interpretation that such sweeping reforms must come from Congress rather than regulatory bodies, placing limits on how far agencies like the CFPB can go in shaping financial policy.
As the issue of medical debt remains a pressing concern in the U.S., attention now shifts to whether legislative solutions will be proposed to fill the void left by the overturned regulation. For now, millions of Americans struggling with healthcare bills will continue to see those debts appear on their credit profiles, potentially affecting their ability to secure housing, employment, and other basic needs tied to financial assessments.
