The CFPB has issued an interpretive rule that says the federal Fair Credit Reporting Act (FCRA) preempts states from regulating broad areas of credit reporting.
“Congress meant to occupy the field of consumer reporting and displace [state] laws within that field,” the bureau said, in the rule that went into effect on October 28.
The interpretive rule could call into question the legality of recent state laws that purport to ban medical debt and other information from credit reports.
The rule replaces a Biden Administration interpretive rule that the agency repealed in May, when it repealed almost 70 other guidance documents and interpretive rules.
“The 2022 rule was not binding on the public or courts, and the withdrawal of the 2022 rule will have no effect on the legal status of any [state] law,” according to the CFPB.
The Biden Administration’s interpretive rule analyzed the FCRA, finding that it had a “narrow sweep” that allowed for substantial state regulation of consumer reports and consumer reporting agencies.
The Trump Administration examined the text and legislative history of the FCRA and rejected that position, saying that the prior interpretive rule was wrong to conclude that states can regulate the presence of certain categories of information, such as medical debt or arrest records, on a consumer report.
Moreover, the Trump Administration concluded that the prior interpretive rule should never have been issued in the first place. “The 2022 rule [was] neither necessary nor [did] it reduce compliance burdens,” the Trump Administration said. The administration emphasized that the 2022 rule risked “fracturing” the credit reporting system by allowing each state to create its own standards.
The administration said that having to comply with those disparate standards would impose substantial compliance costs on consumer reporting agencies, users of credit reports and furnishers of credit report information, “turning what is currently a cohesive national market into dozens of regional markets.”
The 2022 interpretive rule would lead to a “patchwork” system of conflicting regulations, which the FCRA’s was meant to avoid, according to the CFPB. The content of consumers’ credit reports could vary, depending on where people live, the agency said.
For instance, the CFPB said, if some states were to limit the types of adverse information that could be included in a credit report, lenders might not be able to identify the riskiest borrowers, which could lead to a cross-subsidy by good credit risk borrowers for worse credit risk borrowers.
“The utility of credit reports would be undermined because lenders would no longer be able to accurately compare consumers across the country,” according to the CFPB.
Since the rule is an interpretive one, it did not have to go through the comment period.