Debt Collectors File New Challenge to CFPB Medical Debt Rule (1)

Debt collectors sued in Texas federal court to block the Consumer Financial Protection Bureau’s ban on medical debt in credit reports, marking the second legal challenge to the rule since it was finalized this week.

The CFPB overstepped its authority, undertook a rushed and political rulemaking process, and used outdated data in crafting its rule, ACA International, a trade group for debt collectors, and a Houston-based debt collection firm said in a complaint filed Wednesday in the US District Court for the Southern District of Texas.

The plaintiffs acknowledged Americans’ frustration with medical bills, but said the CFPB acted unlawfully.

“Here, a federal agency with no healthcare experience is exploiting this frustration by making a politically-motivated regulation that prevents credit reporting agencies from showing accurate medical debts on credit reports,” ACA International and Specialized Collection Systems Inc. said in their complaint. “No agency has the power to do that.”

The CFPB used outdated research to justify the rule and made a faulty assertion that medical debt was riddled with mistakes, the plaintiffs said.

They also noted that tackling medical debt was a political priority for the Biden administration, leading to a rushed and ill-formed rule that will make it more difficult for hospitals in rural and other underserved areas to collect debts they are owed.

“If left unchecked, this power grab will harm not only ACA members, lenders, and small businesses but it will put many critical care facilities on life support,” ACA CEO Scott Purcell said in a statement Thursday.

The CFPB declined to comment.

The CFPB on Jan. 7 released its final rule barring the inclusion of medical debt on credit reports and the use of such debt in lending decisions.

More than 15 million people in the US have medical bills on their credit reports, which can affect their ability to obtain loans, jobs, and rental housing. Around $49 billion in medical debt is subject to collection, the CFPB found.

The agency said its rule would raise credit scores by an average 20 points.

The rule also incorporated any prohibitions on reporting medical debt mandated by state laws. New York and Colorado prohibit medical debt on credit reports.

In a separate case, the Consumer Data Industry Association, a trade group representing consumer credit reporting companies, and the Cornerstone Credit Union League, a Texas credit union association, sued Jan. 7 in the Eastern District of Texas to block the rule.

Brownstein Hyatt Farber Schreck LLP, Frost Echols LLC, and Martin Golden Lyons Watts Morgan PLLC represent the debt collector plaintiffs.

The case is ACA Int’l v. CFPB, S.D. Tex., No. 4:25-cv-00094, Complaint 1/8/25.