Texas judge says the Consumer Financial Protection Bureau exceeded its authority
- Texas judge rules CFPB lacked authority to bar medical debt from credit files
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Decision preserves lenders ability to consider medical debt in credit decisions
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Industry groups hail ruling as vital for accurate credit reporting
A federal judge in Texas has voided a Biden-era Consumer Financial Protection Bureau (CFPB) rule that sought to ban medical debt from appearing in consumer credit reports, handing a significant victory to credit reporting agencies and lenders.
In his opinion, Judge Sean D. Jordan of the U.S. District Court for the Eastern District of Texas concluded that the CFPB overstepped its statutory authority under the Fair Credit Reporting Act (FCRA) by trying to bar the inclusion of medical debts in credit reports. The Bureau has no such power to define what in a consumer report is permissible, Judge Jordan wrote, adding that Congress alone determines the permissible purposes for which credit reports may be used.
The CFPB issued the rule in the closing days of the Biden Administration, aiming to prevent credit reporting agencies from listing medical debts, even if coded to obscure the nature of the medical treatment. The rule also would have blocked lenders from considering medical debts in credit decisions, which the administration estimated could have erased nearly $50 billion in medical debts from the records of approximately 15 million Americans.
Congress has also been considering a measure that would have vacated the rule.
The CFPB going beyond their statutory authority to eliminate all medical debt from credit reports is irresponsible and a clear example of regulatory overreach, Sen. Mike Rounds (R-S.D.) said. He warned that the rule could lead to banks having a less clear credit picture and limit access to credit for consumers.
Credit industry applauds the action
The Consumer Data Industry Association (CDIA) and the Cornerstone Credit Union League challenged the rule, arguing it exceeded the Bureaus authority and violated the FCRA and the Administrative Procedure Act. When the Trump Administration assumed office, the CFPB reversed its stance and joined the industry in seeking to vacate the rule. However, intervenorsincluding two individuals with medical debt and two clinics assisting patients with related issuestried to keep the rule in place.
Ultimately, Judge Jordan sided with the industry groups, declaring the CFPBs action unlawful. [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, he wrote. As it now recognizes, the Bureau was powerless to promulgate such a rule that flouts a federal statute by functionally rewriting it.
Dan Smith, President and CEO of the CDIA, applauded the ruling. We applaud the courtsdecision to vacatethe prior administrations medical debt rule, he said. Americas 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 consumers ability to pay.
Smith added that the decision ensures lenders maintain access to complete credit information, which he argued is critical for responsible lending and consumer access to financial products.
It remains unclear whether the intervenors or other consumer advocates plan to appeal the ruling.
Posted: 2025-07-15 19:27:54