CFPB Reverses Position on Removing Medical Debt From Credit Reports

America’s consumer protection watchdog has switched its position on removing medical debt from credit reports.

The Consumer Financial Protection Bureau (CFPB) earlier this year finalized a rule that would have kept medical debt from people’s credit history.

The regulator noted at the time that 15 million Americans would have benefited from the change, wiping $49 billion in debt from their records.

Then came the change in administration, with the agency not just reversing its position, but also teaming with plaintiffs trying to block the rule, NPR reported Monday (May 26).

In a motion filed at the end of last month, CFPB joined the Consumer Data Industry Association and the Cornerstone Credit Union League to request a judgment “holding unlawful and vacating the Medical Debt Rule because it exceeds the Bureau’s statutory authority.”

“We believe that Congress is the only one who can act on this and determine whether or not it can be on the credit report,” Dan Smith, CEO and president of the Consumer Data Industry Association, told NPR.

“Our intention here is to protect the credit reporting system. To ensure that it is as complete and accurate as possible,” he said.

According to the report, a judge is expected to decide whether to vacate the rule by the middle of June. The outcome of the case, NPR added, is important to consumers like Andrew Deeds, who owes tens of thousands of dollars in medical debt from treatment for pancreatic cancer.

“My credit was and is very important to me, because it is necessary to secure housing, transportation, and employment, and make sure that I’m never homeless again,” Deeds said in an affidavit filed by a consumer advocacy group intervening in the lawsuit.

As PYMNTS wrote earlier this year, banning medical debt from credit reports could have some unintended consequences, particularly for the healthcare ecosystem as a whole.

“Though the CFPB has claimed that medical debt remains a ‘poor’ predictor of whether or not someone can repay their loans — in the setting where a lender is mulling whether or not to extend credit — leaving the debt off reports removes some incentive to pay that exists between the patient and the provider,” that report said. “The process of chasing debt, placing it in collections, and seeking to be repaid is a long and costly one.”