A federal judge in Texas has vacated the Consumer Financial Protection Bureau’s rule prohibiting the inclusion of medical debt in consumer credit reports, siding with industry trade groups and the Trump administration in a high-profile legal battle over the Bureau’s regulatory authority.
Why it matters: The decision halts implementation of a rule that would have eliminated more than $49 billion in medical debt from credit reports of an estimated 15 million Americans and barred lenders from considering such debt when making credit decisions.
The ruling:
- On Friday, Judge Sean D. Jordan of the District Court for the Eastern District of Texas ruled that the CFPB’s Medical Debt Rule exceeded the Bureau’s statutory authority.
- In his order, Judge Jordan stated: “The Medical Debt Rule exceeds the Bureau’s statutory authority and is therefore unlawful.”
- The court granted the plaintiffs’ request to vacate the rule and denied motions from consumer advocacy groups seeking to preserve it .
Background:
- The CFPB finalized the rule on January 7, 2025, as one of its final acts under former Director Rohit Chopra during the Biden administration.
- The Consumer Data Industry Association (CDIA) and the Cornerstone Credit Union League filed suit on the same day, arguing that the CFPB lacked authority to bar reporting of properly coded medical debt under the Fair Credit Reporting Act (FCRA).
- In April, the CFPB, under Acting Director Russell Vought, abandoned its defense of the rule and joined the plaintiffs in requesting that the court vacate it.
What they’re saying:
- Dan Smith, President and CEO of CDIA, said in a statement: “Information about unpaid medical debts is an important element in assessing a consumer’s ability to pay.”
- Chi Chi Wu, attorney at the National Consumer Law Center, which represented intervening consumer advocates, responded: “We are disappointed in the ruling.”
Between the lines:
- The court had previously allowed Tzedek DC, the New Mexico Center on Law and Poverty, and two individual consumers to intervene in defense of the rule after the CFPB withdrew.
- Despite their arguments, Judge Jordan ruled that the CFPB could not regulate beyond what Congress has explicitly authorized under the FCRA.
What’s next:
- The consumer advocates are evaluating next steps, which may include an appeal.
- The court’s decision is final for now, reinstating the ability of credit reporting agencies to include medical debt in consumer files and for lenders to consider such information.
