Court Overturns Federal Rule That Keeps Medical Debt Off Credit Reports

And, as if that weren’t enough, tries to undermine State laws in the process.

Last month, Judge Sean Jordan of the Eastern District of Texas voided a Biden-era CFPB rule that banned the practice of including medical debt on credit reports. The ruling also explicitly calls into question State laws that continue to prohibit the practice—though it does so without analysis.

In 2024, the Consumer Financial Protection Bureau issued a rule that prohibited a particularly unpopular and dubious practice: the inclusion of medical debt on credit reports.[1] Various trade associations promptly sued the CFPB, arguing that the rule violated the federal Fair Credit Reporting Act.[2] This year, the CFPB under the new Trump Administration changed course and ultimately joined the trade associations’ motion for a consent judgment in the case. The parties sought a declaration declaring the 2024 Medical Debt Rule invalid as exceeding the CFPB’s authority.[3] Clinics and individuals represented by the National Consumer Law Center intervened in the case to ensure that there was a voice arguing in favor of the Rule.

The trial court nevertheless held that the Rule, insofar as it prohibits credit reporting agencies (CRAs) from including medical debt on individual credit reports, is inconsistent with the Fair Credit Reporting Act.[4] In reaching its conclusion, the court adopted the trade associations’ position that the CFPB “has no authority to limit the contents of consumer reports based on state and other law.”[5]

Unusually, and oddly, the court went further (well beyond the case in question) to address state laws addressing medical debt reporting as well. In a classic example of obiter dictum —material that is not necessary to the holding, and that in this case addresses issues that were not even before the court—the court further opined 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.”[6] Judge Jordan’s statement has no precedential value or effect, but it certainly seemed aimed at encouraging challenges to state medical debt reporting laws.

Those laws—like the CFPB rule—aim to protect consumers from the misuse of medical debt in credit reporting. As CFPB research has shown, the incidence of medical debt is not a good predictor of creditworthiness.[7] Rather, medical debt often reflects the simple misfortune of getting sick unexpectedly and having to face a medical system that is rife with insurance stonewalling, delay, and mistakes.[8] Consequently, in an effort to protect particularly vulnerable communities (like veterans and individuals with disabilities)[9], states like California, Connecticut, Colorado, Illinois, Maryland, Minnesota, New Jersey, New York, Rhode Island, Vermont, Virginia, and Washington have banned the practice.[10]

Whatever its effect on the CFPB rule, Judge Jordan’s advisory opinion should not chill these and other states from continuing their efforts. The court’s conclusion that the FCRA preempts state law banning medical debt credit is pure nonbinding dicta. Even so, the opinion reveals the strategic writing on the wall. States and advocates might be wise to begin preparing for a FCRA preemption fight and to take steps to “preemption proof” their existing and future medical debt credit reporting laws.

In the meantime, considering that the CFPB itself joined in the request for the district court’s decision, the federal rule is not likely to be revived in anything like its original form. For now, the battle to keep medical debt off credit reports will be decided in the States.