As discussed here, yesterday the Consumer Financial Protection Bureau (CFPB or Bureau) finalized a rule aimed at removing an estimated $49 billion in medical bills from the consumer reports of approximately 15 million Americans. This rule amends Regulation V, which implements the Fair Credit Reporting Act (FCRA), to eliminate the exception that previously allowed lenders to use certain medical information in making lending decisions. The rule also prohibits consumer reporting agencies (CRAs) from including medical debt information on consumer reports and credit scores sent to lenders. We anticipated that legal challenges would follow, asserting that the rule is arbitrary, capricious, and promulgated in violation of the Administrative Procedure Act (APA).

As predicted, a lawsuit challenging the CFPB’s final rule was filed in the U.S. District Court for the Eastern District of Texas that same day. The plaintiff trade associations argue that the rule exceeds the CFPB’s statutory authority and is arbitrary and capricious.

Key claims in Cornerstone Credit Union League v. CFPB:

• Exceeding Statutory Authority: The plaintiffs argue that the FCRA expressly permits CRAs to report coded medical debt information and authorizes lenders to consider this information in making credit decisions. The CFPB’s final rule, which categorically precludes the inclusion of medical debt on consumer reports and forbids creditors from considering solicited medical debt information, contradicts this statutory framework. “It is black letter law that an agency cannot prohibit through regulations what Congress has expressly permitted by statute.”
• Violation of the APA: The plaintiffs claim that the CFPB’s final rule is arbitrary and capricious. They argue that the Bureau relied on outdated data from a 2014 study, which does not justify the sweeping changes made by the rule. “By relying on this study, the Bureau failed to account for both the reporting changes implemented by the CRAs in the years since and the numerous more recent studies showing that unpaid medical debt does have important predictive value.” Additionally, the rule’s cost-benefit analysis is flawed because it underestimates the adverse effects on consumers, such as higher delinquency and default rates and increased costs of credit. “[K]nowing whether a consumer has a significant unpaid debt (medical or otherwise) is an important element of underwriting, and unilaterally eliminating the consideration of coded medical debt will naturally be expected to adversely affect a creditor’s assessment of the creditworthiness of a borrower.”
• Contradictory Mandates: The plaintiffs highlight that the final rule introduces significant contradictions into the regulatory framework. For example, while the rule prohibits creditors from considering medical debt obtained from a consumer report, it requires them to consider the same debt if it is self-disclosed by a borrower. According to the plaintiffs, this inconsistency creates confusion and undermines the rule’s rationale. “If it is provided by a CRA, it is not necessary and appropriate to protect any legitimate interest. But if it is provided by the applicant, it is so necessary and appropriate that the law mandates its consideration. This makes no sense, and the CFPB makes no effort to reconcile these dueling mandates.”

The plaintiffs seek a declaration that the final rule violates the APA and FCRA, and an order enjoining and setting aside the final rule as not in accordance with law.

This lawsuit marks a significant challenge to the CFPB’s efforts to remove medical debt from consumer reports. We will continue to monitor the litigation and post updates.