Two prominent industry groups have filed a lawsuit against a new rule from the Biden administration, which prohibits the inclusion of medical debt in consumer credit reports. The Consumer Data Industry Association (CDIA) and the Cornerstone Credit Union League argue that the regulation, finalized by the U.S. Consumer Financial Protection Bureau (CFPB), is in violation of the Fair Credit Reporting Act.
Filed in federal court in Sherman, Texas, the lawsuit comes after the CFPB’s move to remove approximately $49 billion in medical debt from the credit reports of 15 million Americans. The rule, which critics say bypasses Congressional authority, was finalized despite objections from Republican lawmakers who urged a halt to new regulations ahead of President-elect Donald Trump’s January 20 inauguration.
The trade groups claim that the new rule contradicts the Fair Credit Reporting Act, which explicitly allows consumer reporting agencies to include medical debt information. According to the lawsuit, the rule should be vacated as it undermines the statute’s provisions.
In defense of the regulation, the CFPB contends that medical debt does not significantly impact a borrower’s likelihood of repaying loans. The rule is expected to lead to higher credit scores for many consumers and potentially result in 22,000 additional low-cost mortgages each year. The CFPB also highlighted the rule’s provision to protect consumers from aggressive debt collectors pursuing payments for debts that may not be owed.
The industry groups warn, however, that the change could limit financial institutions’ ability to accurately assess the risk of borrowers, potentially leading to fewer loans being offered.
The lawsuit has been assigned to U.S. District Judge Sean Jordan, a Trump appointee, with the CFPB declining to comment on the case at this time.
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