The Consumer Financial Protection Bureau today issued an interpretive rule stating that the Fair Credit Reporting Act, or FCRA, preempts state laws on credit reporting, with the move coming after several states enacted laws banning the use of medical debt in credit reports.
The CFPB in 2022 issued a rule interpreting narrowly the FCRA’s preemption of state laws “with respect to any subject matter regulated under” certain sections of the FCRA, giving more leeway to state-level regulation of credit reporting. The CFPB rescinded that rule earlier this year and is replacing it with today’s interpretive rule. The new rule finds that 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.”
Among its findings, the new rule states that the older rule was wrong to conclude that states can validly regulate the presence of certain categories of information — such as medical debt or arrest records — on consumer reports. The CFPB under the Biden administration issued a rule banning the use of medical debt on credit reports and encouraged states to do the same. Fifteen states currently prohibit the use of medical debt on credit reports, according to the Consumer Federation of America.
The CFPB’s medical debt rule was challenged in court and struck down earlier this year, resulting in the bureau rescinding the rule. The American Bankers Association was among the groups that raised concerns about the rule, saying it disregarded creditors’ legitimate needs for medical debt information and the effect of suppressing the information would have on banks’ lending risk and the availability of credit.
“As a result, it is likely to cause significant adverse consequences to banks and consumers, including causing tightened credit standards,” ABA said.
ABA also raised concerns about state medical debt reporting laws, noting in a recent letter to the Justice Department and the White House that such laws are preempted by the FCRA.
