A Texas judge
On Friday, U.S. District Judge Sean D. Jordan, of the U.S. District Court for the Eastern District of Texas, dismissed and set aside the CFPB's
The judge sided with two trade groups — the Consumer Data Industry Association and Cornerstone Credit Union League — who
Under the FCRA, Congress explicitly allowed 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.
Judge Jordan said the CFPB had premised a portion of the medical debt rule on "an erroneous interpretation" of the FCRA, which restricts how consumer credit information can be accessed and used. However, Congress allowed in the FCRA so-called "permissible purposes," or specific situations where a consumer reporting agency can legally provide a consumer's credit report to a third party for credit transactions, employment, insurance, and certain judicial or government actions.
The judge denied efforts by two nonprofit groups — the New Mexico Center on Law and Poverty and legal aid group Tzedek DC — and two individuals, who had petitioned the court for the right to defend the medical debt rule in the absence of support from the CFPB.
"Defendant-Intervenors suggest that the Bureau — by regulation — may limit such 'permissible purposes' beyond what is specified in FCRA's text. This is a misreading of the statute," Judge Jordan wrote in
The ruling sends a clear message to the 14 states that have enacted laws or regulations that either prevent medical debt from being reported to credit bureaus or impose restrictions on the reporting process. Some states have laws requiring hospitals to offer financial assistance before reporting medical debt.
"Just as an agency cannot prohibit what a federal statute explicitly permits, neither can a state law," the judge wrote. "Accordingly, any state law purporting to prohibit a [credit reporting agency] from furnishing a credit report with coded medical information would be inconsistent with FCRA and therefore preempted."
Former CFPB Director Rohit Chopra promulgated the medical debt rule, which had long been championed by consumer advocates. The rule would have removed an estimated $49 billion in medical debt from the credit reports of roughly 15 million Americans. Notably, consumers would have still owed their medical debt, but the debt wouldn't appear on credit reports and couldn't be used to deny them credit.
"America's financial system is the best in the world because it is based on a full, fair and accurate credit reporting system," said Dan Smith, president and CEO of the Consumer Data Industry Association. "Lenders would potentially have had an inaccurate and incomplete picture when making lending decisions."
Banks and credit unions objected to the rule because it prohibited lenders from considering medical debts when making lending decisions, and credit bureaus said the rule would have made credit reports less reliable.
"Information about unpaid medical debts is an important element in assessing a consumer's ability to pay," Smith said. "This is the right outcome for protecting the integrity of the system."
