A new rule banning medical debt from credit reports has ignited a legal battle, pitting consumer protection against credit industry concerns.
At a Glance
- CFPB finalizes rule to remove $49 billion in medical bills from consumer reports
- Two trade associations file lawsuit challenging the CFPB’s authority
- Rule expected to impact 15 million Americans’ credit reports
- Debate centers on predictive value of medical debt in credit scoring
- CFPB argues rule will lead to higher credit scores and wider loan access
Legal Challenge to CFPB’s Medical Debt Rule
The Consumer Financial Protection Bureau (CFPB) has finalized a rule to remove $49 billion in medical bills from the consumer reports of approximately 15 million Americans. This decision has sparked immediate legal action from two trade associations, highlighting a growing debate over the role of medical debt in credit scoring.
The rule, which amends Regulation V implementing the Fair Credit Reporting Act (FCRA), prohibits lenders from using medical information in lending decisions. Consumer Reporting Agencies (CRAs) are now barred from including medical debt information on consumer reports and credit scores sent to lenders.
A trade group representing consumer credit reporting companies and a Texas-based credit union association sued to block the CFPB’s new rule barring most medical debt from credit reports. https://t.co/bTTkV6FTbB
— Bloomberg Law (@BLaw) January 9, 2025
Industry Pushback and Legal Arguments
In response to the CFPB’s rule, the Consumer Data Industry Association and Cornerstone Credit Union League have filed a lawsuit in the U.S. District Court for the Eastern District of Texas. The plaintiffs argue that the rule exceeds the CFPB’s statutory authority and is arbitrary and capricious.
“It is black letter law that an agency cannot prohibit through regulations what Congress has expressly permitted by statute,” the plaintiffs stated in their complaint.
The trade associations claim that removing medical debts from credit reports could lead to worse credit decisions, higher delinquency and default rates, and increased credit costs for consumers. They argue that the rule would significantly impact lenders by eroding the predictive value of credit reports.
CFPB’s Stance and Potential Impact
The CFPB, led by Director Rohit Chopra, contends that medical debts have limited predictive value and contribute to mortgage application denials for consumers who could otherwise repay loans. The bureau expects the rule to increase credit scores by an average of 20 points for Americans with medical debts and approve an additional 22,000 mortgages annually.
“By relying on this study, the Bureau failed to account for both the reporting changes implemented by the CRAs in the years since and the numerous more recent studies showing that unpaid medical debt does have important predictive value,” the plaintiffs argued.
The CFPB maintains that the rule aligns with Congress’s intent to protect consumer privacy and restrict inappropriate use of medical information. Vice President Kamala Harris has expressed support for the rule, stating it will be life-changing for families by facilitating approvals for loans.
