Trump Administration Overturns CFPB Decision, Allows Medical Debt Inclusion on Credit Reports

Trump Administration Overturns CFPB Decision, Allows Medical Debt Inclusion on Credit Reports

In a complex legal battle, David Deeds, a 62-year-old Texas resident, is grappling with mounting medical debt and seeking relief from a federal court. Deeds, who has accrued tens of thousands of dollars in medical expenses stemming from cancer treatment, is embroiled in a lawsuit challenging a consumer protection rule by the Consumer Financial Protection Bureau (CFPB).

The rule, finalized in early 2022, aimed to forbid credit reporting agencies from listing medical debt on credit reports. At the time, the agency projected that the change would benefit approximately 15 million Americans, eliminating $49 billion in medical debt from records. The rule was set to take effect in March.

However, new leadership at the CFPB, appointed by former President Donald Trump, has not only reversed its stance on the rule, but also joined forces with the plaintiffs in the lawsuit trying to block it. The CFPB has yet to respond to a request for comment from NPR. The lawsuit, filed simultaneously with the rule, could have significant implications for Deeds and the millions of others whose credit scores have been negatively impacted by medical debt.

The case has seen a series of delays, with Judge Sean Jordan of Texas' Eastern District ordering a stay twice, pushing the rule's implementation date to July 28. A ruling on whether the rule will be vacated is expected by mid-June.

In an affidavit filed in February, Deeds expressed his reliance on a good credit score for securing housing, transportation, and employment. His cancer diagnosis in 2023, and the subsequent surgeries and medical bills, depleted his savings, piled up unpaid bills, and negatively affected his credit score.

The lawsuit pits the CFPB against the Consumer Data Industry Association and the Cornerstone Credit Union League, who argue that medical debt information is crucial for borrowers and lenders. They maintain that the presence of medical debt on credit reports ensures lenders can make fair and accurate assessments of potential borrowers' ability to repay loans. The three major credit bureaus – Experian, TransUnion, and Equifax – have already made significant policy changes, no longer reporting medical collection items or unpaid medical debt less than a year old, as well as medical collections under $500.

Several advocacy groups have intervened on behalf of consumers, with the National Consumer Law Center representing Deeds and Harvey Coleman, a father from the District of Columbia, among others. The organizations argue that the CFPB exceeded its authority in reversing the rule and should have followed proper notice-and-comment rulemaking procedures.

According to the National Consumer Law Center, over 74,000 public comments were submitted during the rulemaking process, with support from healthcare and medical associations. The CFPB also conducted several studies, including one in 2024 that concluded medical debt may be less predictive of a consumer's ability to repay future loans. An earlier 2014 study found that eliminating medical debt from records would lead to the approval of approximately 22,000 additional affordable mortgages each year and increase credit scores by an average of 20 points.

As of 2024, more than a dozen states already have regulations limiting the impact of medical debt, with measures ranging from restricting wage garnishment for medical debt to prohibiting hospitals from sending bills to collections before screening patients for coverage or financial assistance.

For consumers like Deeds, the outcome of this lawsuit could have profound financial consequences. Sarah Chenven, CEO of Working Credit, a nonprofit focused on helping individuals build or repair their credit scores, stated that even a difference of a few points in credit scores could result in thousands of dollars in additional costs over the life of a loan. Lenders may be more likely to offer less favorable terms or deny credit to those with low credit scores, perpetuating a cycle of financial instability for individuals already strapped with medical debt.

As Judge Jordan prepares to make a ruling in mid-June, millions of Americans find themselves in credit score limbo, awaiting a decision that could provide relief or exacerbate financial difficulties.

1. David Deeds, a Texas resident, is engaging in a legal battle over mounting medical debt, seeking relief from a federal court.
2. Deeds' medical expenses, accrued from cancer treatment, have reached tens of thousands of dollars, negatively impacting his credit score.
3. The Consumer Financial Protection Bureau (CFPB) finalized a rule in early 2022 aiming to prevent credit reporting agencies from listing medical debt on credit reports, potentially benefiting 15 million Americans and eliminating $49 billion in medical debt.
4. However, new leadership at the CFPB has reversed its stance on the rule and joined forces with plaintiffs trying to block it, citing the importance of medical debt information for borrowers and lenders.
5. The lawsuit, which could have significant implications for millions of Americans, has seen several delays and is expected to have a ruling by mid-June.
6. The outcome of this lawsuit could have profound financial consequences for consumers like Deeds, potentially leading to additional costs over the life of a loan.
7. Several state regulations already limit the impact of medical debt, with measures ranging from restricting wage garnishment to prohibiting hospitals from sending bills to collections without screening patients for coverage or financial assistance.
8. In the realm of health and wellness, personal finance, industry, finance, business, policy, and politics, the resolution of this legal battle could change credit score practices in the banking and insurance industry.

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