Earlier this month, the United States District Court for the Eastern District of Texas approved a consent judgment vacating the Consumer Financial Protection Bureau’s (CFPB) Medical Debt Rule. The decision holds that the CFPB exceeded its authority under the Fair Credit Reporting Act (FCRA) and violated the Administrative Procedure Act (APA) when enacting the Rule. This development has significant implications for healthcare providers and other entities involved in the reporting and use of medical debt information.
Background: The Medical Debt Rule and FCRA
The FCRA, permits Credit Reporting Agencies (CRAs) to report medical debt information—provided it is coded to protect patient privacy—i.e., it does not disclose the patient’s health condition or procedure. Continuing with its efforts to prioritize medical debt rulemaking, the CFPB’s Medical Debt Rule, finalized in January 2025, sought to prohibit CRAs from including any medical debt information in consumer reports provided to creditors and barred creditors from considering medical debt information in credit decisions, regardless of coding.
Trade associations representing credit unions and consumer data industries challenged the Rule, arguing it conflicted with FCRA’s express provisions and exceeded the Bureau’s regulatory authority. The CFPB, under new leadership, ultimately agreed with the challengers, leading to a joint motion for consent judgment to vacate the Rule.
Court’s Analysis and Ruling
The Court’s decision addressed several key issues:
- Statutory Authority: The Court found that FCRA explicitly authorizes CRAs to report, and creditors to use, coded medical debt information. The Medical Debt Rule’s blanket prohibition was deemed irreconcilable with the statute’s plain text.
- Administrative Procedure Act: The Court held that the Rule violated the APA by exceeding the Bureau’s statutory jurisdiction and authority.
- Standing: The Court confirmed that the trade associations had associational standing to challenge the Rule, based on compliance costs and the impact on their members’ business operations. The Court found that at least one of the trade associations also had direct standing because “it earns considerable revenue from training healthcare providers and other furnishers of medical debt how to use ‘Metro 2,’ a standardized electronic format used by companies that furnish data to CRAs [and] if medical debt cannot be reported to CRAs, then ‘the demand for [the] CDIA’s training services will decrease,” resulting in financial harm.”
- Remedy: The Court ordered full vacatur of the Medical Debt Rule, finding that all substantive provisions were unlawful and that severability analysis was unnecessary.
Implications for Providers, Creditors and CRAs
While healthcare providers may welcome the roll back of the Medical Debt Rule, providers should be mindful of the implications of the Court’s decision in the broader context.
- Credit Reporting Practices: CRAs may continue to report coded medical debt information in consumer reports so long as the reporting is consistent with coding requirements under FCRA.
- Status Quo: By vacating the Medical Debt Rule, patients will continue to be incentivized to pay medical bills that appear on their credit reports that they may not otherwise have had the Medical Debt Rule taken effect. Providers will not have to rely solely on up front collections.
- Credit Decision-Making: Creditors, including those in the medical field, can consider coded medical debt information when assessing a patient’s creditworthiness. This could influence decisions on payment plans or financing options for healthcare services.
- Regulatory Compliance: Healthcare professionals should be aware of the regulatory landscape and ensure that their practices align with the current legal framework. The court’s decision underscores the importance of understanding how federal regulations can impact financial practices in the healthcare sector.
- Future Regulatory Changes: While the Court’s ruling provides clarity for now, healthcare professionals should stay informed about potential future changes in financial regulations that could affect their operations. The CFPB or other regulatory bodies may propose new rules or amendments in response to this decision.
- State Law: Although, the Court noted that “any state law purporting to prohibit a CRA from furnishing a credit report with coded medical information would be inconsistent with FCRA and therefore preempted[,]” fourteen states have legislation which impact medical debt reporting on credit reports. States have attempted to circumvent “preemption” by targeting users of the credit reports and contracts between healthcare providers and debt purchasers.
Conclusion
The Court’s decision restores the longstanding FCRA framework governing the reporting and use of medical debt information in credit decisions. Healthcare providers and other affected entities should review their compliance policies to ensure alignment with FCRA’s existing requirements. Ongoing monitoring of regulatory developments in this area remains advisable.
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