New medical debt rule already is just about null and void

The future is shaky at best for a new rule preventing medical debt from appearing on consumer credit reports.

The Biden administration’s leadership at the Consumer Financial Protection Bureau (CFPB) published the regulations in mid-January, with an effective date of March 17. But the Trump administration pushed back the effective date back by 90 days, to June 15, in order to conduct a review of CFPB regulations.

In addition, the new leadership at the bureau sought and received a pause in litigation brought by plaintiffs seeking to challenge the rule’s legality. The first hearing in the case is now scheduled for May 12, giving time for the litigation to be discontinued if the CFPB rescinds the regulations before then.

A Feb. 10 statement issued by the White House described the CFPB as a “weaponized arm of the bureaucracy that leverages its power against certain industries and individuals disfavored by so-called ‘elites.’” The statement referred to the medical debt rule, among other CFPB actions, saying the bureau “unilaterally buried $50 billion in medical debt.”

On wobbly ground

Beyond individual regulations, the administration is assessing the role of the CFPB. In the span of a week two different interim directors were appointed, first Scott Bessent, the Treasury secretary in President Donald Trump’s new cabinet, followed as of Feb. 7 by Russell Vought, the new director of the Office of Management and Budget.

Amid an ongoing effort to pare administrative costs across the federal government, Bessent ordered a week-long stop of CFPB regulatory activity and said rules should be frozen if they have not yet been implemented. That order includes the medical debt rule.

Vought went a step further, shuttering the bureau’s Washington, D.C., headquarters for at least a week and stating that the CFPB would not take its federal funding allocation for Q3 because the funding that’s already in the bank is more than adequate to cover upcoming activity.

Vought is a coauthor of the Project 2025 federal government blueprint, which included a recommendation to end the CFPB. Although such a step requires an act of Congress, the bureau’s leadership can stymie operations through steps such as bypassing allocated funding and freezing regulatory activity.

A lawsuit filed by the union representing CFPB staff states that Vought does not have constitutional authority to curtail the bureau’s activities. The bureau’s homepage had been down for several days as of Feb. 11, although individual rules and regulations were accessible both on the CFPB’s website and as published in the Federal Register.

Diverging viewpoints

The new rule attracted praise from consumer advocates and criticism from representatives of the debt collection industry and from some healthcare providers. Critics said consumers would be less likely to pay medical bills if they knew they could avoid an adverse impact on their credit history.

The Biden administration claimed the rule would mean the removal of $49 billion in medical bills from the credit reports of 15 million Americans. Credit scores of those individuals would be expected to rise by 20 points, on average.

Consumer advocates said a key protection, given the relative frequency with which medical debt is disputed, was that consumers would feel less pressure to pay contested medical bills when applying for loans. The CFPB reported that 5.7% of medical collections are disputed, a rate several times higher than that for credit cards or student loans.

Among arguments made by detractors of the rule is that the expected drop in collections would adversely affect providers, which would need to respond by seeking more upfront payments for elective healthcare services and possibly by ramping up litigation to collect owed amounts. They also would face financial implications to the tune of $24 billion in year-one revenue loss, according to a report commissioned by representatives of the debt collection industry.

In the final rule published in mid-January, the CFPB downplayed or did not address the impact the rule would have in those areas.

Consumer protections against the implications of long-term medical debt will remain in some states even assuming the federal rule is formally scrapped. And in 2023, Equifax, Experian and TransUnion voluntarily stopped reporting medical debt that was for less than $500 or had been paid.

Other collection concerns

ACA International, the trade group for the debt collection industry, hopes the administration also will retract a CFPB advisory opinion issued in October 2024. The group filed a lawsuit over the guidance, arguing, in part, that the provisions were substantive enough that they should have been subject to regulatory notice-and-comment procedures.

The advisory opinion clarified that debt collectors violate regulations if they collect medical debts under prohibited circumstances, including when a patient was improperly billed because a provider engaged in upcoding. A concern for debt collectors is the apparent requirement to insert themselves into a provider’s billing and coding processes.

Because the guidance already went into effect, it is not subject to the freeze of recent CFPB regulatory activity. Nonetheless, it lacks the force of a full regulation and can be more easily rescinded — or essentially ignored — by the CFPB’s enforcement arm such as it exists in the new administration.