Banking and Finance Law Daily Wrap Up, FAIR CREDIT REPORTING—Court invalidates CFPB medical debt prohibition rule, (Jul 14, 2025)

By Shashi Kant, BALLB, LLM

In vacating the Bureau’s entire medical debt reporting prohibition, the court found the agency exceeded its authority and remanded the rule to the Bureau for further reconsideration.

A federal court has vacated the Consumer Financial Protection Bureau’s final rule concerning the use of medical information in consumer credit reports. The rule, which sought to ban the listing of medical debt on credit reports was set aside in its entirety in a final judgment entered by the U.S. District Court for the Eastern District of Texas (Cornerstone Credit Union League v. Consumer Financial Protection Bureau, No. 4:25-cv-16-SDJ (E.D. Tex. July 11, 2025)).

Background. The CFPB’s final rule, issued on January 14, 2025, aimed to amend Regulation V, which implements the Fair Credit Reporting Act (FCRA). The rule proposed changes to how creditors and consumer reporting agencies (CRAs) treat medical information related to consumer medical debt (see Banking and Finance Law Daily, Jan. 7, 2025). Key provisions included a prohibition on debt collectors reporting medical debt less than 180 days old and a requirement to remove paid medical debt from credit reports. The CFPB stated the rule would reduce the impact of medical debt on consumer creditworthiness, citing that medical debt often arises from circumstances beyond consumer control and does not reflect creditworthiness.

Legal challenge. Two trade associations, Cornerstone Credit Union League and Consumer Data Industry Association (CDIA), filed a complaint challenging the CFPB’s rule (Banking and Finance Law Daily, January 9, 2025). They argued the rule exceeded the agency’s statutory authority under the FCRA and violated the Administrative Procedure Act (APA). The plaintiffs contended that the FCRA permits CRAs to report coded medical debt information and authorizes creditors to consider it for lending decisions.

In granting a joint motion for consent judgment filed by the trade associations and the CFPB, the court found the proposed consent judgment to be fair, adequate, and reasonable. The court stated that the FCRA, as amended by the Fair and Accurate Credit Transactions Act (FACT Act) in 2003, allows CRAs to furnish information about medical debt if coded to protect privacy, and also permits creditors to use the coded information for credit decisions. The court emphasized that the Bureau’s authority under FCRA Section 1681b(g)(5)(A) allows it to create additional exceptions for creditors to use medical information but does not permit it to prohibit uses explicitly authorized by the statute.

The court concluded that the Medical Debt Rule contradicted the plain text of FCRA Section 1681b(g)(1). This section permits CRAs to include coded medical debt information in consumer reports for credit or insurance transactions. Since the rule prohibits CRAs from furnishing such information to creditors, it was found to exceed the Bureau’s authority. The court also found the Medical Debt Rule irreconcilable with FCRA Section 1681b(g)(2). This section permits creditors to obtain and use properly coded medical debt information. The rule’s attempt to prohibit creditors from doing so was deemed a functional rewriting of the federal statute, which the Bureau lacked the power to promulgate.

Regarding state law and permissible purposes, the court addressed the rule’s provision that prohibited CRAs from reporting medical debt information if they had reason to believe a creditor was legally prohibited from using it, including by state law. The court determined that the Bureau has no authority under FCRA to limit the contents of consumer reports based on state or other law. FCRA defines permissible purposes for consumer reports, and a creditor’s intent to use a report for a credit transaction constitutes a permissible purpose, regardless of state-specific prohibitions on medical debt information.

The court determined that vacatur of the entire rule was the appropriate remedy. It noted that vacatur is the default remedy when agency action is contrary to law, and in this case, every major substantive provision of the Medical Debt Rule was found to exceed the Bureau’s authority. The court stated there was no likelihood the Bureau could justify its decision on remand.

CDIA statement. Reacting to the decision, Dan Smith, President and CEO of the Consumer Data Industry Association (CDIA), issued a statement applauding the court’s decision to vacate the rule. He reiterated the CDIA’s position that the rule exceeded the CFPB’s statutory authority, as FCRA explicitly allows CRAs to report and creditors to use coded medical debt information. Smith added, “Information about unpaid medical debts is important for assessing a consumer’s ability to pay. This is the right outcome for protecting the integrity of the system.” He concluded by stating that CDIA member companies remain committed to providing complete and accurate information to support lenders and help consumers access financial products.

The case is No. 4:25-CV-16-SDJ.

Judge: Jordan, S.

Attorneys: Ryan Thomas Scarborough (Williams & Connolly LLP) for Cornerstone Credit Union League and Consumer Data Industry Association. Amanda J. Krause for the CFPB and Russell Vought.

Companies: Cornerstone Credit Union League; Consumer Data Industry Association

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