Federal Judge Overturns Biden-Era Medical Debt Rule, Impacting Millions

Introduction

On July 11, 2025, a federal judge in Texas struck down a Biden administration rule designed to remove medical debt from credit reports, a decision that could reshape the financial landscape for nearly 15 million Americans. This ruling, rooted in questions of regulatory authority, has sparked debates about consumer protection, healthcare costs, and economic equity. Here’s an in-depth look at the decision, its implications, and what it means for those affected.

Background

In January 2025, the Consumer Financial Protection Bureau (CFPB), an independent agency tasked with safeguarding consumer financial interests, finalized a rule to exclude medical debt from credit reports. The regulation, enacted just before President Joe Biden left office, aimed to alleviate the financial burden of medical debt, which affects an estimated 100 million Americans. The CFPB projected that the rule would remove approximately $50 billion in medical debt from credit reports, improve credit scores by an average of 20 points, and facilitate 22,000 additional mortgage approvals annually.

The initiative was championed by former Vice President Kamala Harris, who, during her 2024 presidential campaign, emphasized erasing medical debt to enhance economic opportunities. “No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Harris stated, highlighting the rule’s intent to shield consumers from the often-unpredictable costs of healthcare.

The Court’s Decision

U.S. District Judge Sean Jordan, appointed by President Donald Trump in 2019, reversed the CFPB’s rule, arguing that it exceeded the agency’s authority under the Fair Credit Reporting Act (FCRA) of 2003. In his July 11 order, Jordan stated that the FCRA does not permit the CFPB to mandate the removal of medical debt from credit reports. He emphasized that while the CFPB could encourage creditors to consider alternative data for assessing creditworthiness, it lacked the legal power to enforce such a sweeping change.

The ruling came after the Trump administration, alongside credit industry groups like the Consumer Data Industry Association (CDIA), challenged the regulation. Dan Smith, CDIA president, welcomed the decision, arguing that medical debt is a relevant indicator of repayment capacity and that its inclusion ensures a “full, fair, and accurate” credit reporting system. The CFPB, under new leadership following Trump’s inauguration, ceased defending the rule, aligning with the administration’s broader push to roll back Biden-era consumer protections.

Impact on Consumers

The reversal is a significant setback for the roughly 15 million Americans who stood to benefit from improved credit scores. Medical debt, often incurred due to unexpected illnesses or emergencies, is widely regarded as a poor predictor of creditworthiness due to its one-time or short-term nature. The American Medical Association has argued that medical debt does not reflect an individual’s ability to repay other loans, unlike voluntary debts like auto loans or credit card balances.

With the rule overturned, individuals with medical debt face renewed risks of higher borrowing costs and reduced access to loans. This could mean elevated interest rates on mortgages, car loans, or credit cards, particularly for lower-income households already grappling with rising healthcare costs. Consumer advocates warn that the decision may exacerbate economic inequality, as those with unpaid medical bills—often blindsided by healthcare expenses—face additional financial strain.

For example, a Reddit user on the r/povertyfinance subreddit lamented, “You can be a responsible person who always pays their bills on time but get sick and not be able to maintain that. Your medical debt should not dictate your creditworthiness.” Another user highlighted the broader consequences, noting that the ruling could contribute to housing instability, as “the fastest growing homeless population in the US is age 50+,” a group particularly vulnerable to bad credit.

Broader Context

The ruling aligns with the Trump administration’s efforts to curb federal agency powers, including through the Department of Government Efficiency, which targets “waste, fraud, and abuse” in federal operations. In March 2025, a federal judge blocked attempts to dismantle the CFPB, underscoring ongoing tensions over the agency’s role. The medical debt rule’s reversal is part of a larger rollback of Biden-era policies, with implications for consumer protections across sectors.

Consumer groups and healthcare advocates, such as Pennsylvania Representative Arvind Venkat, have expressed concern about the ruling’s fallout. Venkat, a sponsor of a bipartisan bill to enhance hospital financial assistance transparency, warned that “efforts to decrease the adverse impact of medical debt on the personal and economic wellbeing of all Americans have ended.” He urged state-level action to mitigate the impact, though federal preemption under the FCRA may limit such efforts.

What Happens Next?

For those affected, immediate steps include:

• Monitoring Credit Reports: Check reports for accuracy and dispute errors through agencies like Equifax, Experian, or TransUnion.
• Negotiating with Providers: Contact healthcare providers to negotiate payment plans or request debt reductions.
• Seeking Assistance: Nonprofit organizations, such as the National Consumer Law Center, offer resources for managing medical debt.
• Exploring State Protections: Some states, such as North Carolina, have implemented measures aimed at limiting medical debt reporting; however, these efforts may be overridden by federal law.

The CFPB could explore new rulemaking within the FCRA’s limits, such as redefining how medical debt is coded or incentivizing voluntary creditor adjustments. However, with the Trump administration’s current stance, no immediate appeal or defense of the original rule is expected. Legal experts suggest that long-term solutions may require congressional action to amend the FCRA or address the root causes of medical debt, such as high healthcare costs.

Conclusion

The reversal of the CFPB’s medical debt rule marks a pivotal moment in the ongoing struggle to balance consumer protections with regulatory authority. For the 15 million Americans affected, the decision underscores the challenges of navigating a healthcare system where unexpected costs can lead to lasting financial consequences. As debates over medical debt and credit reporting continue, affected individuals must take proactive steps to manage their financial health while advocating for systemic change.