TYLER, Texas—With a credit union association among the plaintiffs, a federal judge in Texas has ruled in favor of eliminating a Consumer Financial Protection Bureau rule that barred medical debt from credit reports and lending decisions.

The rule had been enacted under the Biden administration.

“The Medical Debt Rule exceeds the Bureau’s statutory,” Judge Sean D. Jordan of the District Court for the Eastern District of Texas wrote in his ruling.

The CFPB under acting Director Russell Vought had moved to vacate the rule along with other plaintiffs, including the Cornerstone Credit Union League (CDIA) and the Consumer Data Industry Association.

Arguing in defense of the CFPB rule were New Mexico Center on Law and Poverty, Tzedek DC, and other consumer groups.

‘Important Element’

The CDIA, which represents the consumer credit reporting companies, and the CFPB argued that the CFPB had exceeded its authority when it banned the reporting of medical debt on credit reports. 

“America’s financial system is the best in the world because it is based on a full, fair and accurate credit reporting system,” Dan Smith, the CDIA’s president and CEO, said in a statement. “Information about unpaid medical debts is an important element in assessing a consumer’s ability to pay.”

About That Debt

According to the CFPB, approximately 15-million Americans have outstanding medical debt on their credit reports, with over $49 billion in unpaid debt. The Bureau had said removing the debt could lift credit scores by an average of 20 points.

The rule was the last major regulation put in place under former CFPB Director Rohit Chopra

The plaintiffs had argued to the court that only Congress can determine what information is included in consumer credit reports, and that removing medical debt from credit reports would make it more difficult for lenders to determine the creditworthiness of loan applicants.