Medical debt is the biggest cause of personal bankruptcy in the U.S., where 100 million Americans owe a collective $220 billion in medical debt. Many people across the country applauded the Consumer Financial Protection Bureau’s decision last year to remove medical debt from individuals’ credit scores. The rule was finalized on Jan. 7, but several credit rating agencies immediately sued to stop it. Then on April 30, the CFPB, now under Trump administration control, asked a federal court to vacate the agency’s own rule.
Support for the CFPB’s rule crosses political lines, with 85 percent of Democrats, 77 percent of Republicans, and 72 percent of independents in favor of government policy that removes medical debt from credit reports. More than a dozen states responding to the rule’s popularity have passed their own legislation excluding medical debt from their residents’ credit scores.
Between The Lines’ Melinda Tuhus spoke with Kimberly Fountain, consumer financial justice field manager at Americans for Financial Reform. Here she explains why medical debt shouldn’t be included in consumers’ credit ratings and the disparate impact it has on different communities.
KIMBERLY FOUNTAIN: So, before there was a medical debt rule created by the CFPB, any kind of medical debt that you had could be on your credit report. Before then and now, with medical debt being on your credit report, it can prevent you from getting an affordable APR rate on a credit card. It can prevent you from getting a mortgage. It could prevent you from getting rental housing.
Credit scores are a big part of our economic system, but what’s interesting is when it comes to medical debt, it’s not something that people plan for. You don’t plan to get sick or injured. Studies have shown that it’s not an accurate predictor of whether someone will repay loan payments.
And then on top of that, there’s also various studies and reports, indications that a lot of medical debt is actually inaccurate. So people sometimes feel pressured to pay off debts that aren’t even accurate debts or have already actually been paid off. More than a 100 million people have medical debt and it does show up on the credit reports of 15 million people. It also impacts some communities more than others. Black and Latino households are more likely to carry medical debt than white households. Adults with a disability are more than twice as likely to report medical debt. And then new mothers are more than twice as likely to have a medical debt as did young women who did not give birth.
MELINDA TUHUS: This change that the Biden administration made, that was through the Consumer Financial Protection Bureau?
KIMBERLY FOUNTAIN: Yes, with any regulation that a government agency does. There was first a request for information on just medical debt in general. There was comment periods for when the proposed rule came out. Industry advocates, the American people. Everyone was able to make comments during the comment period for this to be approved.
Unfortunately, the medical debt rule never ended up while it was finalized — it was under lawsuit, so it was never implemented unfortunately. It was two industry groups that filed it. Those industry groups were their Consumer Data Industry Association and the Cornerstone League. Shortly after this rule was finalized, this lawsuit came up by these two industry players suing to block the rule and arguing that the bureau had exceeded its authority. And this lawsuit was filed in the U.S. District Court for the Eastern District of Texas, which is basically “court-shopping.” It was a popular venue for litigation challenging the federal government’s reach. In April, the Trump administration’s Bureau joined those trade groups that had already filed the lawsuit and asking for the federal court to strike down the agency’s regulation.
MELINDA TUHUS: Congress has the ability to basically strike down any law that was finalized within a hundred days of the change in administrations.
KIMBERLY FOUNTAIN: This did not get overturned by Congress. I believe that the reason it didn’t get overturned by Congress is because this rule is very popular. A federal judge blocked the rule intended to make it easier for Americans to get loans by removing medical debt with their credit reports. And that was really recently, maybe just a couple weeks ago. I do know that many states are passing their own laws around this because it’s just impacting so many people.
For more information, visit Americans for Financial Reform at ourfinancialsecurity.org.
See more articles and opinion pieces in the related links section of this page. For periodic updates on the Trump authoritarian playbook, subscribe here to our Between The Lines Radio Newsmagazine Substack newsletter to get updates to our “Hey AmeriKKKa, It’s Not Normal” compilation.
For the best listening experience and to never miss an episode, subscribe to Between The Lines on your favorite podcast app or platform.
Or subscribe to our Between The Lines and Counterpoint Weekly Summary.
