Two trade groups — the Consumer Data Industry Association (CDIA) and the Cornerstone Credit Union League — yesterday filed a lawsuit in the District Court for the Eastern District of Texas against the Consumer Financial Protection Bureau over its new rule prohibiting the inclusion of most medical debts on consumer credit reports.
Why it matters: The final rule, which was released a day earlier by the outgoing Biden administration, is set to remove $49 billion in medical debt from credit reports, impacting around 15 million Americans. The CFPB argues the rule will increase average credit scores and enable access to 22,000 more low-cost mortgages annually.
- The lawsuit claims the rule oversteps statutory boundaries, creating significant ramifications for lenders, credit unions, and consumer reporting agencies.
The details:
- The lawsuit argues that the CFPB lacks the authority to prohibit reporting medical debt information coded to protect patient privacy, a practice expressly permitted under the Fair Credit Reporting Act. “It is black letter law that an agency cannot prohibit through regulations what Congress has expressly permitted by statute,” the plaintiffs claim in their complaint. “Because the Final Rule contravenes the statute, it should be vacated.”
- Plaintiffs assert that the rule violates the Administrative Procedure Act by relying on outdated data, neglecting more recent evidence of the predictive value of medical debt for assessing creditworthiness.
- The CFPB justifies the rule by claiming medical debt is often incurred involuntarily and has limited value in predicting loan repayment.
Zoom in: The rule not only bans credit reports from including medical debt but also prevents lenders from considering self-disclosed medical information in most lending decisions. However, the plaintiffs note that creditors must still consider such debt under CFPB’s other requirements, creating contradictory mandates.
- “The CFPB does not even try to reconcile the new prohibition on a creditor considering medical debt obtained from a consumer report with the requirement that it consider that same medical debt if it is self-disclosed by a borrower,” the plaintiffs allege. “This makes no sense, and the CFPB makes no effort to reconcile these dueling mandates.”
What they’re saying:
- Dan Smith, President and CEO of the CDIA, stated, “The CFPB’s rule disrupts a framework carefully established by Congress, undermining the reliability of consumer credit reports.”
- The CFPB declined to comment on the pending litigation.
