Title: Legal Challenges to Biden's Proposal to Ban Medical Debt on Credit Reports
Title: Legal Challenges to Biden's Proposal to Ban Medical Debt on Credit Reports
Last week, two industry groups, including the Consumer Data Industry Association and ACA International, filed lawsuits to block a recent rule finalized by the Consumer Financial Protection Bureau (CFPB). This rule aims to remove medical debt from credit reports and prevent lenders from considering certain medical information during loan decisions. The House Financial Services Committee's leading Republican, Rep. French Hill, has also promised action against the ban.
The rule, if implemented, is projected to eliminate around $49 billion worth of medical bills from the credit records of approximately 15 million consumers. This move would likely boost credit scores and make it easier for individuals to secure mortgages and other forms of credit, according to the CFPB. The rule will take effect 60 days after its publication in the Federal Register.
However, the Consumer Data Industry Association, which represents credit bureaus like TransUnion, Experian, and Equifax, and ACA International, which advocates for debt collectors, contest that the rule violates the Fair Credit Reporting Act and exceeds the CFPB's authority. They argue that excluding medical debt from credit reports will result in inferior credit decisions, leading to higher delinquency and default rates, and increased costs of credit.
Consumer debt plays a significant role in underwriting, and the elimination of medical debt from credit evaluations may devalue consumer credit reports, as suggested by the Consumer Data Industry Association. "This results in worse credit decisions, eventually harming consumers with higher delinquency and default rates and increased credit costs," the complaint stated, highlighting the actions taken by the three leading credit bureaus in 2022 to minimize the impact of unpaid medical bills on consumers.
Rep. French Hill, who chairs the House Financial Services Committee, criticized the CFPB's director, Rohit Chopra, for issuing the final rule. Hill expressed concerns that the rule would inflate medical care costs fine and restrict consumer access to healthcare, particularly in rural areas.
Environmental and financial services analyst Jaret Seiberg of TD Cowen Washington Research Group stated that while the rule is popular among consumers, the industry groups' lawsuit is likely to prevail. He believes the legal action will offer political cover for the Republican Party and the incoming Trump administration, as they will not be seen as backing the inclusion of medical debt in credit reports.
The CFPB declined to comment on the lawsuits and Rep. Hill's statement. The rule is generally supported by consumers who have long criticized the high cost of healthcare in the US, but its opponents raise valid concerns about its potential impact on credit decisions and access to healthcare.
The opposition, led by the Consumer Data Industry Association and ACA International, claims that the rule violates the Fair Credit Reporting Act and exceeds the CFPB's authority, arguing that excluding medical debt from credit reports will negatively impact credit decisions and increase delinquency and default rates. In the business sector, environmental and financial services analyst Jaret Seiberg predicts that the industry groups' lawsuit will likely prevail, providing political cover for the Republican Party and the incoming administration against inclusions of medical debt in credit reports.