A pair of trade groups have filed a lawsuit against the Consumer Financial Protection Bureau, aiming to halt the agency's new rule banning medical debt from credit reports.
The lawsuit filed in Texas federal court argues that the CFPB's rule exceeds the agency's statutory authority. The Cornerstone Credit Union League and Consumer Data Industry Association allege in their suit that the rule violates the Fair Credit Reporting Act, which "expressly permits consumer reporting agencies to report information about medical debt that has been coded to protect the medical privacy of consumers, and expressly authorizes creditors to consider the coded medical debt information in making credit decisions."
The CFBP finalized the rule on Jan. 7. The agency said that its research reveals that a medical bill on a person's credit report is a poor predictor of whether they will repay a loan and contributes to thousands of denied applications for mortgages that consumers would be able to repay. The CFBP projects that the rule will lead to the approval of 22,000 additional, affordable mortgages every year and that those with medical debt on their credit reports could see their credit scores rise by an average of 20 points.
The lawsuit argues that it is a "black-letter law that an agency cannot prohibit through regulations what Congress has expressly permitted by statute. Because the final rule contravenes the statute, it should be vacated."
"If not overturned, the final rules impact will be significant and immediate," the groups argued in the lawsuit. "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. This leads to worse credit decisions, which in turn will harm consumers in the form of higher delinquency and default rates and increased costs of credit."