Consumer Trade Associations Obtain Relief from CFPB's Medical Debt Rule

The litigation filed by Cornerstone Credit Union League (“Cornerstone”) and the Consumer Data Industry Association (“CDIA” and collectively “Consumer Trade Associations”) against the Consumer Financial Protection Bureau (“CFPB”) and former Director Rohit Chopra regarding the CFPB’s Rule prohibiting collection and reporting of consumer medical debt information has concluded with a determination by the Eastern District of Texas that the CFPB exceeded its authority and vacated the medical debt rule consistent with the proposed consent judgment sought by the CFPB and plaintiffs in their joint motion.

The Eastern District of Texas entered a thirty-four page opinion and order detailing its findings that supported vacating the medical debt rule. For more information regarding the medical debt rule and this litigation see our prior blog post, found here and here and here and here, regarding the Medical Debt Rule.

The enacted rule sought to preclude Consumer Reporting Agencies (“CRA”) from collecting and reporting consumer data related to medical debts.

What Does the Fair Credit Reporting Act Say About Medical Debt?

Congress passed the Fair Credit Reporting Act (“FCRA”) in 1970 to protect the privacy of consumers whose information was obtained and furnished by CRAs and to ensure that consumer reports contained accurate information. In 1996 and 2004, Congress amended the FCRA to address, inter alia, information related to consumer medical conditions and medical debt. The amendments allowed CRAs to furnish information about medical debt so long as the information did not identify the medical provider or any medical condition of the consumer and authorized users of credit reports to rely on medical debt information so long as the information is coded.

The CFPB Exceeded its Authority in Promulgating the Medical Debt Rule

Judge Jordan determined that the medical debt rule contradicted the FCRA by prohibiting CRAs from furnishing coded medical information which the Act expressly allows. Similarly, the court determined that the FCRA expressly allows creditors to obtain and use properly coded medical-debt information in credit decisions, but the medical debt rule would prohibit the same.

The court also found that the CFPB does not have congressional authority to limit the contents of consumer reports based on state or other law. The medical debt rule sought to prohibit CRAs from reporting information if they have reason to believe the creditor was prohibited from obtaining or using the medical debt information by state laws. This provision would have seemingly required CRAs to comply with, potentially, stricter state laws regarding collection and reporting of consumer information.

Vacatur is the Proper Remedy for a Rule that Exceeds Agency Authority

Last month the court asked for briefing on the issue of whether vacatur was the proper remedy to address an agency rule. The court concluded that vacatur is the default remedy when an agency acts contrary to law.

Other Issues Addressed by the Court

The court also addressed questions related to the standing of the Consumer Trade Agencies, finding both plaintiffs had standing to challenge the medical debt rule, and whether intervening defendants had to consent to a proposed consent judgment.

Standing was not an issued raised by any parties of the case, but the court’s decision detailed that it was the obligation of every judge to confirm standing before taking judicial action.

Intervening defendants took the position that their consent to the proposed consent judgment was necessary but the court determined no such consent was required for the parties to resolve this litigation. The court determined that an intervening party that does not assert its own claim does not have due process rights beyond the opportunity to be heard and present information.