Will collections agencies soon be banned from reporting consumers’ medical debt to credit bureaus? That is a question currently under consideration by the U.S. court system as two similar lawsuits take issue with the Consumer Finance Protection Bureau’s new rule set to ban medical debt credit reporting.
The Impact of the CFPB’s Proposed Rule
According to the Consumer Finance Protection Bureau (CFPB), their new medical debt rule “will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans.” This change could significantly impact how creditworthiness is assessed across the country.
Legal Challenges to the Rule
Two established industry groups are bringing these lawsuits: ACA International and Specialized Collection Services Inc. brought one lawsuit, while the Consumer Data Industry Association (CDIA) and Cornerstone Credit Union League brought the other. ACA International represents over 230,000 credit and collections industry professionals, while the Consumer Data Industry Association represents approximately 200 consumer data organizations.
The lawsuits cite several reasons why these industry groups feel the rule should not be enacted. They claim that the rule is unconstitutional, saying the CFPB does not have the authority to make this rule and, moreover, that the rule cannot override the existing Fair Credit Reporting Act put in place by Congress. In addition, they say the rule failed to use newer data showing that creditworthiness can be determined using medical debt information, which would be a violation of the Administrative Procedure Act. The rule is also expected to cause confusion over collection agencies’ use of self-disclosed medical debt information, which is banned under this rule but required elsewhere by the CFPB.
What’s Next?
With this rule scheduled to take effect in March 2025, the outcome of these lawsuits will be closely monitored by the credit and collections industry. The potential removal of medical debt from credit reports could reshape how millions of Americans’ creditworthiness is evaluated.