Judge vacates ‘unlawful’ Biden-era CFPB rule to bar medical debt from consumer credit reports

In the waning days of the Biden administration, the Consumer Financial Protection Bureau implemented a new rule that prohibited credit reporting agencies from sharing any information about an individual consumer’s medical debt when providing a requested credit report.

On Friday, a federal judge in Texas reversed and vacated that CFPB rule after it was determined that the agency had exceeded its statutory authority in promulgating it, according to The Hill.

Undoubtedly to the dismay of the Biden-era bureaucrats who imposed the last-minute rule, the judge’s decision was made easier by the fact that the CFBP, now under the new Trump administration, refused to defend the challenged rule and agreed with the plaintiffs in an accepted consent decree that the Bureau lacked the authority to make the rule in the first place.

CFPB medical debt rule challenged

Former President Joe Biden, echoed by former Vice President Kamala Harris, sought to erase medical debt for tens of millions of Americans, and though the challenged CFPB rule finalized in January didn’t go quite that far, it did bar credit reporting agencies from sharing any information about medical debt in consumer credit reports.

At the time the rule was imposed, the Biden administration bragged that it would prevent nearly $50 billion in medical debt from appearing on credit reports for around 15 million Americans — despite medical debt being a critical component in determining an individual consumer’s creditworthiness.

The CFPB rule was swiftly challenged as unlawful by two trade associations — one a regional group of credit unions and the other a national group of credit reporting agencies — in that it exceeded the agency’s relevant statutory authority as well as the Administrative Procedures Act.

Notably, Reuters reported, the CFPB, now under new leadership appointed by President Trump, not only declined to defend the medical debt rule in court but also sided with the plaintiff associations and agreed in a consent decree that the rule was unlawful.

Judge vacates unlawful rule

In a 34-page opinion issued on Friday, U.S. District Judge Sean Jordan, a first-term Trump appointee, accepted the proposed consent decree and agreed that the CFPB’s medical debt rule was unlawful because “it exceeds the Bureau’s statutory authority and violates both” the APA and the Fair Credit Reporting Act.

After reviewing the agreement, the judge deemed it to be “fair, adequate, and reasonable,” and then shifted his attention to the appropriate remedy to redress the plaintiff’s grievances.

Given that the rule was determined to be unlawful under the APA, Jordan observed that the proper remedy under that law was to vacate the rule in its entirety.

“The Court finds that all terms of the consent decree are fair, adequate, and reasonable. The Court therefore adopts the proposed holdings of the consent decree as the holdings of this Court,” the judge concluded.

“As to counts I–III, the Court holds that the Medical Debt Rule exceeds the Bureau’s statutory authority by violating the plain text of 15 U.S.C. § 1681b(a), (g)(1)–(2),” he added. “And because vacatur is the default remedy when the Court finds that an agency action is contrary to law, the Court vacates the Medical Debt Rule in full.”

“This is the right outcome”

According to Reuters, the CFPB did not respond to a request for comment about the final decision in the case in which it declined to defend its own rule from legal challenges.

Dan Smith, head of the Consumer Data Industry Association, one of the plaintiff groups, however, did express that he was pleased with the judge’s decision, and said, “This is the right outcome for protecting the integrity of the system.”

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