A federal judge in Texas has vacated a rule that barred credit reporting agencies from using medical debt to influence credit scores.

In the closing days of the Biden administration, the Consumer Financial Protection Bureau (CFPB) enacted the subsequently overturned rule at issue. This rule entirely prohibited lenders from “using medical information when making decisions about credit eligibility.”

In response, two trade associations, representing credit reporting agencies and credit unions, sued on the same day the rule was issued.

Recently, in a 34-page memorandum opinion and order, U.S. District Judge Sean D. Jordan, appointed by President Donald Trump during his first term, determined that the rule was issued beyond the agency’s authority and contrary to the Fair Credit Reporting Act (FCRA).

Notably, the court’s ruling comes after a marked change in opinions and leadership within the CFPB itself. After Trump won his second term, the agency declined to support the rule and ultimately filed a consent motion with the plaintiffs to find the medical debt rule “contrary to law.” Left defending the medical debt rule were two law clinics and two individuals.

The heart of the matter for the court, is fairly cut and dry: the current version of the relevant statute allows credit reporting agencies (CRAs) to include limited medical debt information in credit reports.

“As it stands, FCRA authorizes CRAs to include information about a consumer’s medical debts in consumer reports when properly coded to conceal the name of the provider and the nature of the services provided,” the opinion explains. “It also permits creditors to use that information to determine a consumer’s credit eligibility.”

The court, in getting to that ruling, sketches out how ample twists and turns in law and practice have led to the current state of things.

The FCRA was initially passed in 1970, and for over 25 years had nothing to say about medical debt whatsoever. Then, in 1996, Congress changed the law to expressly prohibit the reporting of “a consumer’s medical information without their consent.”

Then, in 2003, Congress changed the law again – amending the FCRA with the Fair and Accurate Credit Transactions (FACT) Act.

The latest amendment to the law itself uses broad language that purports to maintain a general bar on the use of medical debt in credit report but with a raft of arguably contradictory exceptions. One such exception, in the court’s terms, allows “CRAs and creditors to make use of coded financial information related to medical debts.”

In the CFPB’s initial opinion – which was then taken up by the intervenors – the two relevant statutes were “designed to protect consumers from disclosure of their medical information.” And, moreover, they argued, the exceptions were so controversial, they needed a regulatory exception for CRAs to begin using medical debt in their credit determinations in the first place.

And, in fact, CRAs and creditors never used medical debt in credit reports until such a regulatory exception was explicitly granted by several departments and administrative agencies in 2005.

Jordan himself notes the change: “CRAs and creditors have relied on this statutory and regulatory framework to report and consider coded medical-debt information in connection with credit decisions.”

Relevant to the arguments in the case, the promulgation of the 2005 rule, the agencies – which included the Department of Treasury and other financial-focused agencies – said the FACT Act “does not contain any specific statutory exception to this broad prohibition.”

So, in other words, the parties defending the CFPB rule believed the case merely pitted one agency-developed rule against another.

But the Trump administration had other ideas.

Instead, the newly constituted CFPB argued the statutes themselves actually give CRAs and creditors wide latitude to use medical debt information in their issuing credit reports and scores, as well as credit decisions.

The intervenors – who stepped into the CFPB’s shoes after the changing of the guard in Washington, D.C. – rubbished this notion.

“Over the past twenty years, it has been well-established that the FCRA only permits medical financial information to be shared or considered for credit decisions pursuant to the 2005 regulatory exception,” their 33-page opposition to the consent agreement argues. “[T]he CFPB purported to change this when it suddenly adopted Plaintiffs’ novel theory that the statute itself — which was designed to protect consumers from disclosure of their medical information — instead requires the opposite.”

The court, however, sided with the government and the trade associations.

“The Court agrees with the Consenting Parties that the Medical Debt Rule is irreconcilable with [the amended statute],” the opinion reads. “Under FCRA, Congress has authorized CRAs to furnish credit reports with medical information to creditors if ‘the information to be furnished pertains solely to transactions, accounts, or balances relating to debts,’ and if any identifying information is coded.”

Jordan goes on to torch the argument that the real issue is a matter of dueling regulations – again by finding the statute determinative.

From the opinion, at length:

Defendant-Intervenors’ suggestion that [the statute] requires the [CFPB] to first create an exception under its regulatory authority in [the FCRA] is atextual and unpersuasive. True enough, [the FCRA] allows the [CFPB] to create additional exceptions that broaden the permissible uses for medical-debt information. But nothing in the text — grammatically or otherwise — suggests that CRAs are prohibited from reporting any medical-debt information absent an authorization from the [CFPB].

Aside from vacating the rule itself, the court also made sure to strike a blow against the power and authority of the CFPB.

“[T]he Medical Debt Rule purports to provide the [CFPB] with authority to limit the contents of consumer reports based on state and other law,” the opinion goes on. “Because the [CFPB] has no such power under FCRA, the Consenting Parties’ proposed conclusion that this section of the Medical Debt Rule exceeds the Bureau’s statutory authority is fair, adequate, and reasonable.”

Jordan additionally issued a preemption decision which purports to bar any state from attempting its own version of the rule.

“Finally, just as an agency cannot prohibit what a federal statute explicitly permits, neither can a state law,” the opinion continues. “Accordingly, 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.”