Two trade groups have sued the Consumer Financial Protection Bureau for issuing a rule to remove medical debts from credit reports, claiming the bureau ignored the legislative history and exceeded its authority.
On Tuesday, the Consumer Data Industry Association and Cornerstone Credit Union League filed a lawsuit against the CFPB, on the same day that the bureau issued a final rule banning medical bills from credit reports and prohibiting lenders from using medical information in lending decisions.
The lawsuit alleges the CFPB exceeded its statutory authority under the Fair Credit Reporting Act, and chose to ignore the legislative history of medical debts. In 1996, Congress prohibited medical debt from being reported to credit bureaus — but then reversed itself in 2003 and created an exception to allow medical debts to be reported with special coding that removed the names of medical providers and types of services.
The 54-page lawsuit, filed in the U.S. District Court for the Eastern District of Texas, states that removing medical debt from credit reports contravenes the Fair Credit Reporting Act and "should be vacated."
"The CFPB has exceeded its statutory authority with this sweeping regulation," said Dan Smith, president and CEO of CDIA, which represents the major credit bureaus — Equifax, Experian and TransUnion — as well as regional credit bureaus, background check companies, and other entities that provide consumer credit and related data services.
The CFPB declined to comment.
The trade groups are expected to file a preliminary injunction soon to stop the rule from going into effect. Removing medical debts from credit reports would raise credit scores by roughly 20 points, according to the CFPB, but the trade groups claim doing so would artificially inflate scores. Credit unions are concerned that their members will originate loans that consumers cannot afford to repay. Cornerstone is a trade group that represents 600 credit unions in five states: Arkansas, Kansas, Missouri, Oklahoma and Texas.
"The CFPB lacks the legal authority to prohibit creditors from considering medical debt, as long as information about the provider of medical services and the nature of services provided is not disclosed," Smith said. "Nor does the CFPB have the authority to dictate what can or cannot be included on consumer credit reports."
The two trade groups argue that Congress in 2003 amended the FCRA through the Fair and Accurate Credit Transactions Act, which specifically authorized medical debt to be coded to protect the privacy of consumers. The FACT Act authorized creditors to consider the coded medical debt information in making credit decisions, according to the lawsuit.
"Congress determined that these provisions struck the appropriate balance between protecting a consumer's private medical information and ensuring creditors have access to information relevant to the assessment of a consumer's creditworthiness when determining whether to extend credit to the consumer," the lawsuit states. "Now, in the waning days of the Biden Administration, the CFPB upends the carefully balanced framework established by Congress with a Final Rule that plainly exceeds its statutory authority."
The groups concede that the CFPB has the authority under the FCRA to revoke the exception for considering noncoded medical debt but that it has no authority to completely ban medical debt from credit reports or from being considered in credit decisions. The CFPB's rule does not allow the inclusion of any medical debt — coded or not — on credit reports.
"It is black letter law that an agency cannot prohibit through regulations what Congress has expressly permitted by statute," the lawsuit states.
ACA International, which represents debt collectors, said in a press release that the CFPB's final rule "will create a market shift of billions of dollars," impacting doctors and hospitals.
The lawsuit claims the medical debt rule is "arbitrary and capricious," because it relies on a CFPB study from 2014 that claims medical debt has limited predictive value. Industry says the study is outdated and claims that creditors need to know if a consumer has a significant amount of unpaid debt. The CDIA has long claimed that the CFPB's medical debt rule is based on policy concerns about the health care system and insurance coverage.
The CFPB first proposed taking medical bills off credit reports in 2023 and
The three credit bureaus stopped reporting medical debt collections of less than $500 and currently delay for one year the reporting of medical debt collections to account for slower insurance repayment practices.
