The Consumer Financial Protection Bureau is asking a federal court to scrap a Biden-era regulation that would keep medical debt off consumer credit reports. In a motion submitted to a Texas federal court on Wednesday, April 30, the CFPB joined two industry groups representing banks, credit unions, and credit bureaus in asking a judge to strike down the rule. The motion accuses the CFPB of exceeding its legal authority and violating laws over how regulations are made.
What would the rule do?
In the last couple weeks of his administration, President Joe Biden put in place a rule that would not only ban medical debt from appearing on people’s credit reports, but keep lenders from using someone’s medical debt history to make lending decisions.
The rule was scheduled to take effect in March, but the Consumer Data Industry Association and Cornerstone Credit Union League sued the CFPB to halt the rule. A district judge in Texas issued a 90-day stay, pushing the rule’s start date to June 15.
Now, the CFPB has joined with the two trade groups in asking a judge to do away with the rule, saying it “exceeds the bureau’s statutory authority.”
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According to a 2022 CFPB report, medical debt made up the majority of collection items on credit records.
Dan Smith, president of the Consumer Data Industry Association says the rule would prohibit lenders from “considering complete and accurate information when making lending decisions.”
If the judge does not agree to scrap the regulation, the Trump administration can, since Congress has the option to review and rescind final rules.
Already, America’s three largest credit reporting companies have removed several forms of debt from credit reports. They include paid medical debts, unpaid medical debts less than a year old and medical debt less than $500.
What are consumer advocates saying?
Consumer advocates say getting rid of the Biden-era rule could keep important protections from many Americans.
“Prohibiting alleged medical debts from appearing on credit reports would benefit 15 million people who are unfairly disadvantaged by often inaccurate alleged medical debt on their credit reports, particularly Black, Latino, and low-income communities,” Brady Williams, legal counsel for the nonprofit Better Markets, said in a statement
According to Williams, credit reports can often include “false or inaccurate information about medical debts.” He and his organization also say medical debt is not helpful for credit underwriting. They note that such debt “is often incurred involuntarily and unexpectedly and is not an accurate reflection of consumers’ ability or willingness to repay debts.”
Williams called the CFPB’s move to join the motion against the regulation a “betrayal of the agency’s core mission.”
Medical bills accounted for more than half of debt collection on consumers’ credit records, according to a 2022 report from the CFPB.
What are the Trump administration’s plans for the CFPB?
Right now, the CFPB also is the subject of another court challenge. This one from its employees who are fighting the Trump administration’s effort to effectively close the agency.
In his first weeks in office, the president also rolled back several of Biden’s regulations, including a cap on overdraft fees and oversight of digital payment apps.
The head of the Department of Government Efficiency, Elon Musk, made a post on his social media platform X in early February, reading “CFPB RIP” followed by a tombstone emoji, seeming to indicate the consumer protection bureau is one of many government entities on the chopping block as President Trump looks to drastically decrease government spending.
