Two groups representing the credit reporting and credit union industries are taking legal action against a new rule that bars the inclusion of medical debt on consumer credit reports in the United States.
Key Facts:
– Two groups, the Consumer Data Industry Association and Cornerstone Credit Union League, filed suit in Texas.
– The rule was finalized by the U.S. Consumer Financial Protection Bureau (CFPB).
– According to the agency, the rule will remove $49 billion in medical debts for around 15 million Americans.
– The rule also prohibits lenders from considering certain medical information in lending decisions.
– Trade groups argue the rule conflicts with the Fair Credit Reporting Act.
The Rest of The Story:
The lawsuit accuses the CFPB of overstepping its legal authority.
Trade organizations claim the Fair Credit Reporting Act explicitly allows medical debt to appear on credit reports.
Their complaint states that this legislative provision means an agency cannot simply ban the practice through regulation.
With the rule now finalized, about $49 billion in outstanding medical debt would disappear from consumer credit histories.
This could potentially boost credit scores for people carrying medical bills, while also enabling them to qualify for more affordable loan products.
The CFPB contends that medical debt is not a reliable indicator of creditworthiness because many individuals fall behind on payments for medical services they never intended to purchase, unlike discretionary credit card spending.
Critics of the rule say lenders require access to full credit histories to accurately assess an applicant’s risk level.
Industry representatives warn that this removal of data could lead banks and credit unions to issue loans that carry more risk.
They also raise concerns that it might encourage higher interest rates or reduced lending options.
The rule’s defenders maintain that individuals should not face major financial hurdles due to unexpected or incorrect bills, especially when insurance or providers might resolve these expenses.
This debate reflects an ongoing divide between protecting consumers from the burden of medical bills and giving financial institutions the data they believe is necessary to make fair lending decisions.
They say the rule runs afoul of the Fair Credit Reporting Act, a 1970 law that authorizes consumer reporting agencies to access information about medical debt and consider it before deciding whether to extend credit. https://t.co/FcgHwWS8Jk
— The Washington Times (@WashTimes) January 9, 2025
The Bottom Line:
The new rule bans medical debt from credit reports in an effort to remove barriers for consumers who have faced serious medical needs.
While it could lead to improved credit scores for many, opponents believe it disregards a law that allows the reporting of this type of debt.
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The final outcome will hinge on the Texas court’s decision, shaping how medical bills affect Americans’ borrowing power.