A Texas federal judge has voided a Biden Administration CFPB rule that would have prohibited medical debt in credit reports.
“The Bureau has no such power to define what in a consumer report is ‘permissible,’” Judge Sean D. Jordan of the Eastern District of Texas wrote. “Congress has defined the permissible purposes of a consumer report, and a creditor has a permissible purpose if it intends to use the report for a credit transaction.”
The medical debt rule was issued by the CFPB in the closing days of the Biden Administration. It would have prohibited credit reporting agencies from reporting debts even if they used codes or information to disguise the nature of the medical treatment. It also would have prohibited creditors from considering medical debt in credit reports when making credit decisions. The administration estimated that it would have removed almost $50 billion from the credit reports of almost 15 million people.
The Consumer Data Industry Association and the Cornerstone Credit Union League challenged the validity of the rule contending that it exceeds the Bureau’s authority in violation of Fair Credit Reporting Act and the Administrative Procedure Act.
When the Trump Administration took office, the CFPB joined the industry groups in seeking to vacate the rule. However, intervenors – two people with medical debt and two clinics that help people with related issues – sought to stop them.
The judge sided with the industry groups and vacated the rule.
“In sum, [the] FCRA expressly allows creditors to obtain and use properly coded medical-debt information in credit decisions, but the Medical Debt Rule would prohibit them from doing so,” Judge Jordan wrote. “As it now recognizes, the Bureau was powerless to promulgate such a rule that flouts a federal statute by functionally rewriting it.”
He concluded, that “the proposed conclusion that the Medical Debt Rule exceeds the Bureau’s statutory authority is fair, adequate, and reasonable.”
Dan Smith, President and CEO of the Consumer Data Industry Association said he was pleased with the decision.
“We applaud the court’s decision to vacate the prior administration’s medical debt rule, which prohibited including medical debt on credit reports given to creditors, meaning lenders would potentially have had an inaccurate and incomplete picture when making lending decisions,” he said.
He continued, “America’s financial system is the best in the world because it is based on a full, fair and accurate credit reporting system. Information about unpaid medical debts is an important element in assessing a consumer’s ability to pay. This is the right outcome for protecting the integrity of the system. Our member companies remain committed to providing complete and accurate information to support lenders and help consumers access financial products.”
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