Overview:
A rule that would've protected millions of Americans' credit reports has been reversed. Estimates are this reversal will prevent roughly 22,000 additional mortgages each year from being approved.
When a Biden-era consumer protection rule removed billions in medical debt from personal credit scores, fair-credit watchdogs cheered. The rule, they said, would be of particular benefit to Black Americans, whose credit scores are more likely to be weighed down by doctor or hospital bills than other racial groups.
This week, however, a federal judge in Texas overturned the rule the Consumer Financial Protection Bureau implemented in January. Judge Sean Jordan, a Trump appointee, ruled that the CFPB had usurped a power reserved for Congress.
Now, banks and other lenders can resume using information about unpaid hospital or medical bills when considering a credit or loan application. Experts say the boomerang will hamstring consumers applying for a mortgage, auto loan, or new credit card.
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Meanwhile, the Trump Administration and DOGE implemented an executive order that has since gutted the CFPB and overturned several consumer protection rules.
Last year, an estimated 31 million Americans borrowed money to pay for healthcare costs. This includes 23% of Black adults — more than double the rate of white adults. Around 3 in 10 Black adults under age 50 borrowed money to pay medical bills, compared with just 14% of whites.
Allison Sesso, president and CEO of the nonprofit Undue Medical Debt, said the ruling will not only hurt consumers’ access to credit but also hinder their ability to find work. It could even keep them from seeking healthcare for fear of incurring more debt.
“The facts are clear: Medical debt is not predictive of creditworthiness,” Sesso, whose organization, based in Queens, New York, helps people resolve crippling medical debt. “This decision will hurt people’s financial futures, including their ability to buy a home, care for their families, or even get a job — all because they got sick, injured or were born with a chronic condition through no fault of their own.”
Such is the case of Le’Erin Watts, an Undue Medical Debt client and 40-year-old mother of two from Cincinnati. She couldn’t complete a home purchase because of an unpaid $75 medical bill she didn’t know about that had appeared on her credit report.
Watts quickly paid it and moved forward — only to get tripped up a few years later by an overdue, $1,400 medical bill, which resulted in a deputy sheriff showing up at her home to collect. Watts eventually established a payment plan.
The CFPB rule, which President Joe Biden approved in 2025 just before Donald Trump’s second inauguration, kept medical debt from appearing on individual credit reports. The ban kept banks and lenders from using the information to gauge whether an applicant was a worthy credit risk. People carrying medical debt would have seen their credit scores improve by an average of 20 points.
But between the racial wage gap, lower access to robust health insurance, and lower employment compared to whites, Black Americans are more likely to carry medical debt. That’s despite the fact that healthcare billing errors can damage credit, and studies show that medical debt isn’t a reliable indicator of credit worthiness.
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“Our communities are stronger and healthier when everyone feels comfortable going to the doctor when they need to without fear of financial ruin,” Sesso said. “This policy enjoyed strong bipartisan support, which is why we are confident that states from across the political spectrum — many of which have already passed their own bans on including medical debt in credit scores — will continue to identify pathways to protect their communities from the negative impacts of medical debt credit reporting.”