The Consumer Financial Protection Bureau and two trade groups have jointly asked a federal court to vacate a rule that would remove medical debts from credit reports.
The CFPB sided with two trade groups that
"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," the joint motion states.
However, in February, two nonprofit groups and two individuals stepped in to defend the medical debt rule in the absence of support from the CFPB under the Trump administration. The New Mexico Center on Law and Poverty, legal aid group Tzedek DC and two citizens with medical debt proposed to intervene.
The motion to intervene is still pending, with supplemental briefing due by May 7.
In the joint motion signed by Mark Paoletta, the CFPB's chief legal officer, the bureau said that the case "presents purely legal questions that have already been subject to vigorous adversarial briefing, intervenors can add little to the arguments already submitted."
Chi Chi Wu, a senior attorney at the National Consumer Law Center, said: "If our clients are granted the ability to intervene, we will vigorously defend the CFPB's medical debt rule on their behalf."
Ariel Levinson-Waldman, founding president and director-counsel at Tzedek DC, said the medical debt rule "is an important protection for the people we serve in our legal and financial counseling work who are burdened by the stresses of medical debt."
If enacted, the medical debt rule would remove an estimated $49 billion in medical debt from the credit reports of roughly 15 million Americans. Notably, consumers would still owe the debt, it just wouldn't appear on credit reports and couldn't be used to deny credit.
The outcome of the litigation will ultimately determine whether the rule is vacated or permitted to stand.
Dan Smith, president and CEO of the Consumer Data Industry Association, which represents credit reporting agencies, said he was pleased that the CFPB joined with the trade groups in moving for a consent judgment to vacate the rule. Doing so, will maintain what he called a "fair and accurate credit reporting system."
"Information about unpaid medical debts is an important element in assessing a consumer's ability to pay," Smith said in a statement. "The rule would have prohibited medical debt on credit reports and prohibited lenders from considering complete and accurate information when making lending decisions."
The CFPB and trade groups asked the court to set aside the rule under the Administrative Procedure Act, stating that it violates the Fair Credit Reporting Act, which explicitly allows consumer reporting agencies to include medical debt information in credit reports, as long as the information is coded to hide the consumer's underlying health condition, procedures or providers. The CFPB and trade groups also asked the court to dismiss remaining claims with prejudice, so it cannot be refiled again in the future.
The bureau and trade groups allege there is no statutory basis for the bureau to limit the kinds of information that credit reporting agencies may furnish because the FCRA expressly permits credit reporting agencies to report coded medical debt information to creditors when making credit decisions.
Separately, Sen. Mike Rounds, D-S.D., in March
