Two major industry groups, representing the credit reporting and credit union sectors, have filed a lawsuit challenging a new regulation imposed by the Biden administration that prohibits the inclusion of medical debt on American consumers’ credit reports. The lawsuit was filed in federal court in Sherman, Texas, by the Consumer Data Industry Association (CDIA) and the Cornerstone Credit Union League, shortly after the U.S. Consumer Financial Protection Bureau (CFPB) finalized the controversial rule.
The new regulation, which removes approximately $49 billion in medical debt from the credit reports of an estimated 15 million Americans, aims to relieve financial strain on consumers burdened by medical bills. Despite facing pressure from Republican lawmakers to halt the rule as President-elect Donald Trump prepared to take office, the regulation was finalized and adopted.
The trade associations argue that the rule violates the Fair Credit Reporting Act (FCRA), which explicitly allows consumer reporting agencies to include medical debt information and gives creditors the authority to consider such data when making lending decisions. In their lawsuit, the plaintiffs assert, “It is black letter law that an agency cannot prohibit through regulations what Congress has expressly permitted by statute,” and they call for the rule to be vacated.
The case has been assigned to U.S. District Judge Sean Jordan, a Trump appointee, and the CFPB has declined to comment on the lawsuit.
According to the CFPB, the removal of medical debt from credit reports would help to improve consumers’ credit scores, as medical debt is not always an accurate reflection of a borrower’s ability to repay loans. The agency estimates that the new rule could result in an additional 22,000 low-cost mortgages being issued annually, benefiting consumers with improved creditworthiness.
Additionally, the rule is designed to prevent debt collectors from pressuring consumers into paying for medical debts they may not owe, further safeguarding consumers from potential financial harm. The regulation also prohibits lenders from considering certain medical information in lending decisions, which the CFPB believes could help reduce unnecessary financial strain on consumers.
However, industry groups representing banks and credit bureaus warn that the ban could hinder their ability to assess the risk of borrowers accurately, potentially leading to more conservative lending practices. They argue that without access to medical debt information, financial institutions may become more cautious, which could limit the availability of credit and loans for consumers.
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