The remnants of a federal consumer protection watchdog has asked the court to vacate its own regulation barring medical debt from credit scores.
In a joint motion, the Consumer Financial Protection Bureau (CFPB) joined credit reporting and consumer data trade groups in requesting that the court set aside the Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information.
CFPB had issued the final rule on Jan. 7 under the Biden administration, with the plaintiff trade groups—Cornerstone Credit Union League and the Consumer Data Industry Association—suing to block it that same day.
The final rule was initially set to go into effect in March, and alongside excluding medical debt from consumer credit reports would also prohibit lenders from considering borrowers’ medical information during assessments.
Though major credit reporting agencies began voluntarily removing some medical collections from their reports in 2022, the final rule was expected to improve the scores of 15 million people by an average of 20 points due to the billions of outstanding medical debt that remained. Consumer advocacy groups had hailed the regulation as a relief for lower- and middle-class economic burdens.
The time since has seen the CFPB largely gutted, starting with the departure of Director Rohit Chopra and an ordered pause on the bureau’s enforcement activities. In April roughly 1,500 of its employees received reduction in force notices that would leave the bureau with just over 200 workers, though those cuts have been temporary halted amid a pending union lawsuit.
The CFPB is an independent bureau under the Federal Reserve that was created in the wake of the 2008 financial crisis to implement and enforce federal consumer financial law. It has returned $21 billion to consumers through refunds and debt cancellation since its creation. The bureau long been a target of conservative lawmakers (PDF) and public figures, with its abolishment among the stated goals of the Project 2025 (PDF) political playbook.
As for its medical debt rule, court documents show that the CFPB initially opposed the trade groups’ lawsuit but, after a changing of the guard, conferred with the plaintiffs and requested a 90-day preliminary injunction that stayed the regulation’s effective date until June 15.
As of the April 30 joint motion filing, CFPB and its acting director, Russell Vought, now agree with the plaintiffs’ argument that the medical debt rule is contrary to multiple laws, and that its issuing exceeded the bureau’s authority.
“The parties request that the Court enter a final judgment holding unlawful and vacating the Medical Debt Rule because it exceeds the Bureau’s statutory authority and violates 15 U.S.C. § 1681b(g)(1)–(2) and the Administrative Procedure Act,” they wrote in the filing.
The joint motion was accepted by the federal judge overseeing the case, who cancelled a scheduled hearing for next week.
In February, in response to the changes at the CFPB, two individuals with medical debts and two nonprofits that support those with medical debt (the New Mexico Center on Law and Poverty and Tzedek DC) filed a motion to intervene in the case and take up defense of the medical debt rule. That motion is still pending, with the judge asking the proposed intervenors, the plaintiffs and the CFPB to file more information in support or opposition by Wednesday.
The Consumer Federation of America, an advocacy organization, described the filing as a detriment to millions and a case of the Trump administration bowing to corporate interests.
“Getting sick should never threaten a person’s financial stability, disqualify them from housing, or undermine their ability to find employment,” Adam Rust, director of financial services for the group, said in a May 1 statement. “If they succeed in walking away from the rule, the CFPB will destabilize the financial security of the 15 million Americans with $49 billion in medical debt in collections and tilt the economy in favor of debt collectors and insurance companies. There is a price for this extremism, and if this rule is canceled, the costs will be paid by the struggling families who could face a hard choice between preserving their credit score or seeking healthcare.”