The Biden administration banned the reporting of medical debt on credit reports, but the ban is under threat of being overturned.
The ban was finalized in a rule by the Consumer Finance Protection Bureau in early January. The rule would erase an estimated $49 billion in unpaid medical bills from the credit reports of roughly 15 million Americans, the C.F.P.B. said. Medical bills can greatly affect credit.
But Republicans have opposed the rule, saying it would make credit reports less accurate.
Rule paused
In January, a federal judge appointed by President Donald Trump ordered the C.F.P.B. to pause the rule for 90 days.
The administration said it was abolishing the Consumer Finance Protection Bureau. Treasury Secretary Scott Bessent, in his role as acting director of the C.F.P.B., directed bureau staff last week to stop all work, and ordered a pause to all rulemaking and enforcement as the Trump administration reviews whether those policies align with its priorities.
Two industry groups filed lawsuits seeking to block the rule, ABC News reported in mid-January. The Consumer Data Industry Association, which represents credit bureaus such as TransUnion, Experian and Equifax, wrote in its complaint, filed in the U.S. District Court for the Eastern District of Texas, that if medical debt is eliminated, the value of consumer credit reports will be threatened. ACA International, which represents debt collectors, says that the rule violates the Fair Credit Reporting Act and the bureau lacks the authority to issue such a ban.
The news is important because of the widespread feeling that the Trump administration is friendly to business interests, which like to have credit reports that allow them to charge more to customers with weaker credit ratings.
The idea of the “regulatory freeze” Trump has imposed might seem sound and inoffensive, but the consequences are swift and direct. In this case, freezing that regulation could mean your credit continues to be dinged by medical debt, meaning that your car payment or mortgage payment is higher — if you can even get a loan for a car or a house. Also, your credit card interest rate is higher, or you could be denied a job because of your credit rating. Those undesirable effects are what the regulation was intended to avert.
One fix
Doug Aldeen, a Texas healthcare lawyer, wrote on LinkedIn that there would be one easy fix: “Place all state legislators, Congressman and all other government workers on a [high-deductible health plan] ($10,000 deductible) for a three-year tour of duty and unleash Vinny and Guido from ABC Collection Corp on the government employee masses. Usain Bolt would finish dead last in a 100 meter sprint to the capitol to change this dysfunctional system.”
He added that “made-up and inflated chargemaster bills that have no rational relation to what the facility collects or its costs and have no bearing on creditworthiness.” The bills sent to patients, in other words, often have the inflated “chargemaster price,” or sticker price, instead of the much-lower rate usually paid by an insurance company. (See here for our post on who gets paid what in healthcare.)
If medical bills can no longer affect any meaningful credit decision, he added, “fear mongering” by insurers would end and “traditional insurance becomes almost meaningless.”
The C.F.P.B. was created by Congress in the aftermath of the housing crisis that set off the Great Recession. It became one of the nation’s most feared regulators, with the power to protect consumers on mortgages, credit cards, student loans, credit reporting and other areas.
Some states, like Colorado and New York, have their own bans on credit reporting.
