Industry groups sue over Biden’s ban on medical debt on credit reports | Business and economic news
The consumer watchdog said the new rule would lead to higher credit scores and an extra 22,000 low-cost mortgages a year.
Two groups representing the credit reporting and credit union industries have filed a lawsuit challenging a new rule passed by the outgoing administration of US President Joe Biden that prohibits the inclusion of medical debt on the credit reports of US consumers.
The Consumer Data Industry Association and Cornerstone Credit Union League filed the lawsuit in federal court in Sherman, Texas, on Tuesday, shortly after the U.S. Consumer Financial Protection Bureau completed regulation.
The agency said the rule would remove $49 billion in medical debt from the credit reports of about 15 million Americans. It was passed despite demands from Republicans in Congress that Biden’s financial regulators stop issuing new rules as President-elect Donald Trump prepares to take office on January 20.
Trade groups say the rule violates the Fair Credit Reporting Act, which specifically allows consumer reporting agencies to report information about medical debt and authorizes creditors to review that information.
“It is the black letter of the law that an agency may not prohibit by regulation what Congress has expressly permitted by statute,” the lawsuit states. “Because the final rule conflicts with the statute, it should be struck down.”
The case has been assigned to U.S. District Judge Sean Jordan, who was appointed by Trump. The CFPB declined to comment.
According to the CFPB, medical debt provides little indication of whether a borrower is likely to repay the loan, and the change should result in higher credit scores and could lead to the issuance of an additional 22,000 low-cost mortgages per year.
The new rule will also prohibit lenders from considering certain medical information when making credit decisions and help prevent debt collectors from forcing consumers to pay erroneous medical debts they don’t actually owe, the agency said.
Industry groups of banks and credit bureaus argued that the ban could leave them blind to important information about the risk financial institutions face from borrowers and could result in banks offering fewer loans, not more.
