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A federal judge has overturned a Consumer Financial Protection Bureau (CFPB) rule that would have removed unpaid medical debt from credit reports. The ruling, issued by Judge Sean Jordan of the US District Court for the Eastern District of Texas, states the CFPB overstepped its authority and that only Congress has the power to enact such a change. The decision reverses a policy expected to lead to the approval of approximately 22,000 additional mortgages annually.
The now-vacated rule, announced in January shortly before the end of President Biden’s term, stemmed from the CFPB’s assertion that medical debt is often inaccurate and not a reliable predictor of a person’s ability to repay other loans. CFPB Director Rohit Chopra had argued that the rule would protect individuals facing financial hardship due to illness and prevent debt collectors from leveraging medical bills to coerce payments.
Two industry associations, joined by the Trump administration, challenged the rule, leading to the lawsuit presided over by Judge Jordan, a Trump appointee. The judge cited the Fair Credit Reporting Act in his decision.
This reversal is expected to significantly impact individuals carrying medical debt, potentially hindering their ability to secure mortgages and other loans. The CFPB’s initial rule projected an average credit score increase of 20 points for those affected and would have removed nearly $50 billion in medical bills from credit reports, prohibiting lenders from considering this debt in most loan decisions. Opponents of the rule argued it would undermine the integrity of the credit scoring system.