Federal Court Vacates CFPB’s Medical Debt Rule, Finds FCRA Preempts State Laws

On July 11, 2025, the U.S. District Court for the Eastern District of Texas vacated the Consumer Financial Protection Bureau’s (CFPB) rule prohibiting the inclusion of medical debt on consumer credit reports. The court also concluded that the Fair Credit Reporting Act (FCRA) expressly preempts state laws that attempt to impose similar restrictions. The court reinforced the principle that regulatory agencies must operate within the boundaries of their statutory authority. This decision sets uniform standards presently and for the future, while preserving the integrity and reliability of credit reporting systems in the United States.

Background

Approximately, 100 million Americans carry medical debt according to Kaiser Health News. In 2021, medical debt made up 58% of consumer debt on credit reports.[1] The Texas court decision upholds the rights of lenders to assess the creditworthiness of borrowers using this large tranche of data.

In June 2024, the CFPB proposed a rule that would have barred credit reporting agencies from including medical debt and related collection tradelines on consumer reports. Specifically, the CFPB argued the rule was necessary because medical debts are frequently inaccurate, coerced or do not reflect a consumer’s creditworthiness. This rule was finalized on Jan. 7, 2025.

Subsequently, industry plaintiffs, the Consumer Data Industry Association (CDIA) and the Cornerstone Credit Union League challenged the rule in the Eastern District of Texas along with ACA International in a companion case filed in the Southern District of Texas, asserting that the rule exceeded the CFPB’s statutory authority and conflicted with the FCRA’s statutory text.

Upon thorough analysis, the court found three counts in CDIA’s complaint to be meritorious, thus making the consent judgment fair:

1. The plain language of FCRA Section 1681b(g)(1) permits credit reporting agencies to include a consumer’s medical debt information in their consumer report, provided that the information is coded to conceal the consumer’s underlying health condition, procedure and provider.
2. The medical debt rule exceeds the CFPB’s authority and violates Section 1681b(g)(2). Since the FCRA expressly allows creditors to obtain and use properly coded medical debt information in credit decisions, the medical debt rule is contrary to law and the CFPB’s rule violated the Administrative Procedure Act (APA).
3. The medical debt rule unlawfully prohibits credit reporting agencies from reporting medical debt information if they have “reason to believe the creditor” is “otherwise legally prohibited from obtaining or using the medical debt information, including by State law.” 90 Fed. Reg. at 3278, 3374. The court agreed that this part of the medical debt rule tried to give the CFPB more power than FCRA allows. Therefore, it ruled that this part of the rule exceeds the CFPB’s authority and is invalid.

The Court’s Decision

In a detailed opinion, the Texas court reviewed the fairness of the consent judgment between plaintiffs and the CFPB, which enjoins and prohibits the medical debt rule in its entirety. In addition to holding that the CFPB lacked statutory authority to prohibit the reporting of accurate medical debt, and that the rule violated the APA, the court also reviewed plaintiffs’ preemption argument. The court said:

“Finally, just as an agency cannot prohibit what a federal statute explicitly permits, neither can a state law. 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.”

Importantly, the court also found that the FCRA expressly preempts state laws that attempt to limit or ban the reporting of medical debt. It explained that 15 U.S.C. Section 1681 et seq. permits consumer reporting agencies to report information about consumers’ medical debt that has been coded to protect their medical privacy. It also authorizes creditors to consider such information when making credit decisions going forward.

Specifically, the court held that federal law permits the inclusion of properly coded medical debt in consumer reports and that any conflicting state law “would be inconsistent with FCRA and therefore preempted.” In the court’s view, both the CFPB’s rule and current state laws that ban medical debt reporting are precluded by the FCRA’s express language. It follows that nationwide consistency in reporting of unpaid accounts would ensure transparency and inclusion of accurate information when creditors rely on credit reports.

Implications for State Laws

The court’s ruling casts doubt on the enforceability of recent state laws—enacted or proposed in states such as Colorado, New York, Minnesota and others—that restrict the reporting of medical debt. Although those laws are not directly at issue in the Cornerstone case, the court’s detailed review of statutory text and interpretation of the FCRA preemption suggests that similar legal challenges could invalidate such state statutes. While the decision from the federal district court in Texas only directly applies in that jurisdiction, other states and courts could rely on its legal guidance for future lawsuits trying to overturn state medical debt reporting protection laws.

As a result of this decision, states may consider reforming their Medicaid plans and hospitals may anticipate reforming their financial assistance programs or extending participation in their charity care programs. Some states have implemented government protections to assist consumers with medical debt. Currently, credit reporting agencies have voluntarily removed medical collection debt under $500 from credit reports; however, this action is currently challenged in an antitrust concerted action lawsuit.

Since 2023, 15 states have taken steps to remove medical debt from credit reports. These states include California, Oregon, Washington, Colorado, Minnesota, Illinois, Maine, Vermont, New York, Rhode Island, Connecticut, New Jersey, Maryland, Virginia and Delaware. As such, these state laws may be impacted by the Texas decision.

1. California: SB 1061 (Limón, passed 2024) prohibits medical debt from being included on consumers’ credit reports. The bill also prohibits using any medical debt listed on a credit report as a negative factor when making credit decisions.
2. Oregon: SB 605 (Campos and Sosa, passed 2025) prohibits medical service providers from reporting medical debt to any consumer reporting agency.
3. Washington: SB 5480 (Riccelli, passed 2025) prohibits collection agencies from reporting medical debt to credit agencies.
4. Colorado: HB 23-1126 (Ricks and Exum, passed 2023) protects consumers with medical debt from credit harm by prohibiting the inclusion of medical debt information on credit reports.
5. Minnesota: The Minnesota Medical Debt Relief Act, sponsored by Sen. Boldon and Rep. Reyer chaptered in 2025 (SF 1347), makes a one-time appropriation of $5 million to buy and forgive medical debt. The Debt Fairness Act (SF 4097), also sponsored by Sen. Boldon and Rep. Reyer, prohibits medical debt credit reporting, and prohibits medical debt from being used to deny medically necessary care.
6. Illinois: SB 2933 (Stadelman and West, passed 2024), this bill makes it unlawful for a consumer reporting agency to create a consumer report containing any adverse information that the furnisher knows or should know relates to medical debt incurred by the consumer or a collection action against the consumer to collect medical debt. The bill would also make it unlawful for a credit reporting agency to maintain a file on any consumer containing information relating to medical debt.
7. Maine: L.D. 558 (Bailey, passed 2025) prohibits the reporting of medical debt to consumer reporting agencies. The law bars medical creditors, debt collectors and debt buyers from furnishing information about medical debt to credit bureaus, regardless of payment status or consumer repayment activity.
8. Vermont: SB 27 (Lyons, passed 2025) eliminated up to $100 million in medical debt for low- and moderate-income residents and removes medical debt from credit scores.
9. New York: SB-S4907A (Rivera, Chaptered 2024), prohibits medical debt from being collected by a consumer reporting agency or included in a consumer report.
10. Rhode Island: Passed in 2025, S-0169 and S-0172 would ban medical debt reporting and bars wage garnishment to collect judgments based on medical debt.
11. Connecticut: SB 1469 (Keitt, Turco, and Marx, passed 2025) seeks to protect spouses from inheriting medical debts from their partners. SB 395 (Sens. Looney, Anwar, Lesser, Kelly and Reps. Candelaria, Delany; passed 2024) seeks to prohibit health care providers or collection entities from reporting medical debt to a consumer reporting agency.
12. New Jersey: SB-2806 (Turner and Ruiz, passed 2025) prohibits a consumer reporting agency from creating a consumer report containing a patient’s paid medical debt or medical debt worth less than $500.
13. Maryland: HB 268 (Charkoudian, passed 2025) bans hospitals’ reporting of medical debt to credit reporting agencies. HB 1020 (Carr, passed 2025) prohibits consumer reporting agencies from including medical debt on credit reports.
14. Virginia: HB 1725 (Delaney, passed 2025) specifies that no such interest or late fees shall exceed 3% of the amount of such medical debt per annum. The bill provides that a violation of its provisions constitutes a prohibited practice under the Virginia Consumer Protection Act. The bill has a delayed effective date of July 1, 2026.
15. Delaware: SB 156 (Mantzavinos, 2025) prohibits the reporting of medical debt information to consumer reporting agencies and prohibits any medical debt information that is contained in any consumer report from being used when making decisions regarding someone’s credit, employment or housing.

Next Steps to Watch For

Intervenors in the case, backed by a plaintiff attorney trade group, have 60 days from the ruling to appeal the decision. In the meantime, the court’s order immediately nullifies the CFPB’s rule and sends a strong message to states that federal law overrules state law regulating consumer credit reports. The decision protects the integrity of the consumer reporting industry and sets future enforceable and protective standards against regulatory overreach. As a result, businesses subject to both federal and state credit reporting laws should assess the ruling’s impact on compliance strategies and evaluate preemption risks in states with medical debt reporting restrictions.

BHFS will continue to monitor developments in this case and advise on implications for both federal regulation and state-level policymaking activity.

[1] https://www.commonwealthfund.org/publications/explainer/2025/feb/federal-rule-on-medical-debt