On July 11, the U.S. District Court for the Eastern District of Texas vacated the CFPB’s Medical Debt Rule, concluding that the rule exceeded the Bureau’s statutory authority under the Fair Credit Reporting Act (FCRA). The decision blocks a major regulatory effort aimed at limiting the role of medical debt in credit underwriting. The CFPB’s now-vacated rule also would have barred lenders from considering medical debt when evaluating loan applications.
The court entered a memorandum opinion and order in a lawsuit filed by two trade associations that challenged the rule under both the FCRA and the Administrative Procedure Act (APA). The Bureau, having changed its view on this issue, joined the parties in a joint motion for entry of judgment, and the court approved a consent decree vacating the rule in full. In its opinion, the court concluded that the rule conflicted with statutory text in FCRA, exceeded the Bureau’s rulemaking authority, and failed to comply with the Administrative Procedure Act’s requirement that agency rules be consistent with governing law.
Putting It Into Practice: In dicta, the court also held that state laws that ban the use of medical debt in credit reporting are preempted by FCRA. That holding directly conflicts with the First Circuit’s 2022 decision in Consumer Data Industry Association v. Frey, which held that the FCRA does not broadly preempt state restrictions on medical debt reporting. With many states now enacting laws banning the inclusion of medical debt in credit reporting (previously discussed here, here, here, and here), we will continue monitoring to see how the legal landscape shapes up.