Medical Debt Rule On The Brink: Who Is Impacted?

A federal rule that aimed to wipe medical debt off credit reports is now on shaky ground — and it could be scrapped before it even takes effect. The policy, introduced during the Biden administration, was designed to prevent medical bills from dragging down credit scores or influencing lending decisions. But now, that effort may be undone.

The Consumer Financial Protection Bureau (CFPB), the agency behind the rule, recently changed course and joined trade groups in asking a judge to vacate the regulation. According to a USA TODAY report, the agency argued that the rule exceeded its legal authority, surprising consumer advocates who expected the CFPB to defend its own policy. Originally set to take effect in March, the rule was already paused by a federal court and may now be permanently shelved.

Supporters of the rule say removing medical debt from credit reports is a commonsense reform that protects people from being penalized for unavoidable and often unexpected healthcare costs. About 15 million Americans currently have medical debt listed on their credit reports, which can make it harder to get approved for loans, credit cards, or even rental housing. Critics of the reversal warn this move could keep struggling families stuck in a cycle of bad credit caused by something as common as an emergency room visit or surgery.

On the flip side, credit industry groups argued the rule would restrict lenders from seeing the full picture of a borrower’s financial situation. They believe access to complete information — including medical debt — helps lenders make more informed decisions and benefits borrowers in the long run.

The debate comes as credit reporting practices are already evolving. In recent years, the major credit bureaus voluntarily removed certain types of medical debt, including paid bills and debts under $500. Still, a large chunk of unpaid medical bills remains, and without a clear federal rule, it’s up to the courts and individual lenders to decide how that information is used.

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