CFPB’s Medical Debt Credit Reporting Ban Faces Industry Suit (2)

A trade group representing consumer credit reporting companies and a Texas-based credit union association sued to block the Consumer Financial Protection Bureau’s new rule barring most medical debt from credit reports.

The CFPB overstepped its authority in eliminating medical debt from credit reports and banning creditors from considering medical debt in lending decisions, the Consumer Data Industry Association and the Cornerstone Credit Union League said in a complaint filed Tuesday in the US District Court for the Eastern District of Texas.

Only Congress has the power to determine whether information can or can’t be included in credit reports, the complaint said.

The ban will make it harder for lenders, employers, and rental housing providers to make informed decisions about the creditworthiness of borrowers, the industry groups said.

“Knowing whether a consumer has debt is an important element of underwriting, and unilaterally eliminating consideration of coded medical debt information erodes the predictive nature, and therefore the value, of consumer reports,” the complaint said.

The suit came on the same day the CFPB finalized its medical debt rule.

“The CFPB lacks the legal authority to prohibit creditors from considering medical debt, as long as information about the provider of medical services or the nature of services provide is not disclosed,” Consumer Data Industry Association President and CEO Dan Smith said in a statement. “Nor does the CFPB have the authority to dictate what can or cannot be included on consumer credit reports.” Smith is a former top CFPB official.

The CFPB says its rule would boost Americans’ credit scores by an average of 20 points.

The agency declined to comment on the lawsuit.

Medical Debt Fight

Around 15 million Americans have medical bills on their credit reports, with more than $49 billion subject to collection, according to CFPB research.

The agency said its rule, a Biden administration priority, eliminated an exemption in the 1970 Fair Credit Reporting Act that’s allowed third-party debt collectors to get medical debt placed on credit reports.

But the CFPB relied on an outdated 2014 report in determining that medical debt has limited predictive value when determining a potential borrower’s creditworthiness, the industry groups said in their suit.

And Congress affirmed the exemption allowing third-party debt collectors to place medical debt on credit reports in the 2003 Fair and Accurate Credit Transactions Act, the industry plaintiffs said. That law allowed medical debt to be reported as long as it was coded in a way to protect patient privacy, striking an “appropriate balance” between protecting patients and allowing lenders and others to review an applicant’s financial status, the lawsuit said.

The lawsuit also takes issue with provisions that extend the medical debt reporting ban to include any prohibitions mandated by state laws. New York and Colorado currently prohibit medical debt on credit reports.

“Not only does this provision negate the express statutory provisions in FCRA, but by incorporating various state law prohibitions on the information creditors may consider when making credit decisions, the Final Rule also violates FCRA’s preemption provisions,” the complaint said.

Williams & Connolly LLP represents the industry plaintiffs.

The case is Cornerstone Credit Union League v. CFPB, E.D. Tex., No. 4:25-cv-00016, complaint filed 1/7/25.