Judge blocks implementation of Biden's rule, preventing medical debts from appearing on credit reports
In a significant turn of events, a federal judge has vacated a rule by the Consumer Financial Protection Bureau (CFPB) that aimed to prevent medical debt from appearing on credit reports and limit its consideration in credit decisions. The ruling, issued by Judge Sean Jordan of the US District Court of Texas' Eastern District on July 11, 2025, found that the CFPB exceeded its statutory authority under the Fair Credit Reporting Act (FCRA).
The annulled rule would have removed an estimated $49 billion in medical bills from the credit reports of about 15 million people, and prohibited lenders from using medical devices, such as wheelchairs or prosthetic limbs, as collateral for loans. It would also have barred them from repossessing the devices if patients were unable to repay the loans.
The decision marks a return to the previous legal situation where medical debt can be reported if coded to obscure provider and medical details, as allowed by the FCRA. The CFPB's medical debt rule is now fully vacated and not in effect. The court emphasized that neither the Bureau has the authority to limit the contents of consumer credit reports nor can it prohibit creditors from using coded medical debt information.
State laws attempting to ban reporting of medical debt are also preempted by federal law, the court ruled. The decision comes after the CFPB had already withdrawn support for the rule in court, recognizing its potential conflict with the FCRA.
Industry groups, such as the Consumer Data Industry Association and ACA International, which represents credit and collection professionals, had filed lawsuits against the bureau's rule. They argued that it would weaken the accuracy and completeness of consumer credit reports, and force lenders to reduce access to credit, prompting health care providers to require upfront payments.
The CFPB's research had suggested that medical debt on credit reports is not a good predictor of a person's ability to pay other loans. However, the annulled rule would have allowed lenders to consider medical information in certain situations, such as when a consumer requests a loan to pay health expenses or asks for a temporary postponement of loan payments for medical reasons.
Prior to vacatur, it was estimated that the rule would lead to the approval of about 22,000 additional mortgages every year. Those with medical debt on their credit reports could have received a 20-point boost, on average, in their credit score, according to the CFPB.
The annulment of the rule has left medical debt reporting lawful under existing federal statute. However, independent industry practices reflecting voluntary omissions of smaller medical debts (e.g., less than $500) have been emerging due to both market and litigation pressures, separate from the CFPB rulemaking.
Health care bills often contain mistakes, leading to extended battles between patients, health insurers, and medical providers. The vacated rule's impact on these disputes remains to be seen. The CFPB did not respond to requests for comment on the ruling.
- This ruling by Judge Sean Jordan, vacating a rule by the Consumer Financial Protection Bureau (CFPB), signifies a significant shift in the business sector, as it allows medical debt to be reported on credit reports and considered in credit decisions once again.
- The decision also means that the finance industry can resume using coded medical debt information in consumer credit reports, a practice that was previously questioned by the CFPB's medical debt rule.
- Concurrently, independent industry practices, driven by market and litigation pressures, have already seen an increase in the omission of smaller medical debts (less than $500) from credit reports, independent of the CFPB rulemaking.
