The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule asserting that federal laws preempt state laws concerning Federal Credit Reporting Act (FCRA) standards, including the reporting of medical debt on consumer credit reports.
Several states – such as Colorado, New York and Maryland – have laws prohibiting or limiting the inclusion of certain medical debt information on consumer credit reports.
The CFPB argued, “the FCRA generally preempts state laws that touch on broad areas of credit reporting, consistent with Congress’s intent to create national standards for the credit reporting system,” in its interpretive rule, published on Oct. 28 in the Federal Register.
The new interpretive rule was issued as a replacement for a July 2022 interpretive rule, which the bureau withdrew in May. The 2022 guidance allowed states to pass their own laws governing the inclusion of certain types of data on credit reports, including medical debt. It reasoned that Sec. 1681c of the CFPA “does not regulate the subject matter of when medical debt (or debt generally) may be first included in a consumer report.”
“If a state law were to forbid a consumer reporting agency from including medical debt in a consumer report for a certain period of time after the debt was incurred, such a law would generally not be preempted,” according to the 2022 interpretive rule.
When the bureau announced its withdrawal of the 2022 interpretive rule, along with nearly 40 other rescinded guidance documents dating back to 2011, the agency stated it was “committed to issuing guidance only where that guidance is necessary and would reduce compliance burdens rather than increase them.”
The new guidance claimed the 2022 interpretive rule “does not meet its current standards for the issuance of guidance,” and the bureau “does not believe that reliance interests compel” the agency to reissue it.
“The 2022 rule is neither necessary nor does it reduce compliance burdens,” the bureau wrote. “The Supreme Court has recently reaffirmed that courts are the ultimate arbiters of statutory meaning, and in particular ‘agencies have no special authority to pronounce on pre-emption absent delegation by Congress.’ It was unnecessary for the bureau in 2022 to opine on the scope of preemption under the FCRA. The FCRA does not compel – or even authorize – the bureau to provide its legally binding views on preemption. That stands in contrast to other statutes administered by the bureau, which do delegate such authority to the bureau. Nor did the 2022 rule ease compliance burdens.”
The CFPB argued the 2022 interpretive rule represented a “narrow” reading of the Sec. 1681t(b)(1) of the CFPA, compared with interpretations issued by various courts that have evaluated the scope of FCRA preemption.
“Instead, they have properly interpreted FCRA’s preemption clause to broadly preempt the general subject matter that is identified by the clause,” the CFPB wrote. “For instance, in Premium Mortgage Corp. v. Equifax, Inc., the plaintiff mortgage lender brought state-law claims against several consumer reporting companies for selling pre-screened reports containing trigger leads to other mortgage lenders. The claims included misappropriation of trade secrets, fraud, unfair competition, tortious interference with contract, breach of contract and unjust enrichment. The court concluded that these claims were preempted because they ‘relate[] to the prescreening of consumer reports.’”
In May 2022, the bureau noted in its annual Fair Debt Collection Practices Act (FDCPA) report to Congress estimated that more than 70 million Americans were subject to debt collection actions annually. Among those consumers, the type of debt found most often on their credit reports was medical debt, followed by telecommunications, retail, banking and financial services debt.
The bureau referred to this report as part of its justification for its final rule banning medical debt from being included on consumer credit reports, which was finalized in January. The rule was the subject of a repeal attempt in March via the Congressional Review Act while it was also being challenged in federal court. The legal challenge ended with acting CFPB director Russ Vought vacating the rule in July, sparking criticism from some lawmakers.