By Nate Raymond
(Reuters) – Two groups representing the credit reporting and credit union industries have filed a lawsuit challenging a new rule adopted by the outgoing administration of U.S. President Joe Biden that bans the inclusion of medical debt on U.S. consumers’ credit reports.
The Consumer Data Industry Association and Cornerstone Credit Union League filed the lawsuit Tuesday in federal court in Sherman, Texas, shortly after the U.S. Consumer Financial Protection Bureau finalized the 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.
The trade groups say the rule violates the Fair Credit Reporting Act, which expressly allows consumer reporting agencies to report information about medical debt and authorizes creditors to consider that information.
“It is black letter law that an agency cannot prohibit through regulation what Congress has expressly authorized by statute,” the lawsuit said. “Because the final rule conflicts with the statute, it should be struck.”
The case was assigned to U.S. District Judge Sean Jordan, a Trump appointee. The CFPB declined to comment.
According to the CFPB, medical debt provides little indication of whether a borrower is likely to repay a loan and the change should result in rising 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 lending decisions and will help prevent debt collectors from trying to force consumers to pay incorrect medical debts that they don’t actually owe, the agency said.
Banking and credit bureau groups argued that the ban could blind them to important information about the risks financial institutions face from borrowers, which could lead banks to offer fewer loans.
(Reporting by Nate Raymond in Boston, Editing by Alexia Garamfalvi and Matthew Lewis)