Two influential groups representing the credit reporting and credit union industries have initiated a lawsuit contesting the new regulations enacted by the Biden administration, which prohibit medical debt from appearing on American consumers' credit reports. Filed in federal court in Sherman, Texas, the suit addresses rules formalized by the Consumer Financial Protection Bureau (CFPB), aiming to alleviate the burden of medical debt for approximately 15 million Americans.

The Consumer Data Industry Association and the Cornerstone Credit Union League argue that the regulations violate the Fair Credit Reporting Act, which explicitly allows reporting of medical debt. In their lawsuit, they claim, “It is black letter law that an agency cannot prohibit through regulations what Congress has expressly permitted by statute” (source: Reuters). This legal action arrives just as President-elect Donald Trump prepares to take office.

The CFPB had justified its regulations by noting that medical debt offers minimal insight into the likelihood of a borrower repaying loans, potentially increasing credit scores by an average of 20 points. This change could lead to the issuance of an additional 22,000 low-cost mortgages annually (source: Al Jazeera). CFPB Director Rohit Chopra emphasized that “people who get sick shouldn’t have their financial future upended,” highlighting the importance of these reforms.

However, many within the financial and credit reporting industries contend that excluding medical debts from consideration may limit their awareness of borrowers' risks, possibly leading to fewer loan approvals (source: LA Times). Critics, including Republican leaders, have termed these interventions as “regulatory overreach,” suggesting they undermine standard lending practices.

The repercussions of this lawsuit could significantly impact the future of medical debt collection and its management within the broader financial landscape, sparking ongoing debates on consumer protection versus regulatory oversight.