Consumer Financial Protection Bureau’s Medical Debt Rule Faces Legal and Legislative Challenges

Consumer Financial Protection Bureau’s Medical Debt Rule Faces Legal and Legislative Challenges

According to an article by Ballard Spahr, the Consumer Financial Protection Bureau (CFPB) has finalized a rule prohibiting the inclusion of medical debt in credit reports used for lending decisions and barring lenders from using such information in credit evaluations. The medical debt rule aims to prevent financial destabilization for individuals due to medical expenses. 

CFPB Director Rohit Chopra says this rule could remove $49 billion in medical debts from the credit reports of 15 million people, potentially increasing their credit scores by an average of 20 points and facilitating an estimated 22,000 additional mortgage approvals.

The CFPB asserts that medical debts lack predictive value for lenders and often involve billing errors, undermining consumer trust. The rule aligns with congressional directives limiting the use of medical information in credit decisions. Major credit reporting agencies and scoring companies have already begun reducing the impact of medical debts on credit scores.

However, the medical debt rule faces significant legal and political opposition. Two lawsuits filed in Texas claim the CFPB exceeded its authority, arguing the rule disrupts the balance established by Congress, particularly concerning coded medical debt that protects consumer privacy. Industry groups argue the rule is politically motivated and lacks a reasoned basis.

Republican leaders in Congress also oppose the rule, warning it could limit credit access and harm lenders and healthcare providers. Legal challenges and potential legislative action suggest a contentious path forward for the CFPB’s regulation.