By Denise Norgle
Senior Vice President of Public Policy, Legal and Regulatory Affairs, CDIA
On August 10, a federal judge in Texas issued an important ruling for the consumer reporting industry in CDIA v. Paxton. Recognizing that a patchwork of inconsistent state laws would weaken a national uniform system for consumer reporting that was created by Congress in the Fair Credit Reporting Act (FCRA), the Court declared a Texas state law to be preempted by the FCRA and unenforceable.
CDIA filed suit in federal court in Texas challenging a state law that would prohibit consumer reporting agencies from including certain medical debts on consumer reports. The basis of CDIA’s challenge was that the FCRA preempts state laws that impose any requirement or prohibition with respect to any subject matter regulated under FCRA Section 1681c relating to the contents of a consumer report.
In granting CDIA’s motion for summary judgment, Judge Pitman, appointed by President Obama, issued a well-reasoned decision holding that the FCRA preempts states from passing legislation that is more protective of consumers in relation to adverse information on their consumer reports—which includes the reporting of medical debt. For that reason, he found the Texas medical debt reporting ban to be preempted.
In reaching that conclusion, Judge Pitman carefully analyzed not only the language of the FCRA but also the legislative history that led up to Congress including two different preemption provisions in the FCRA. The first protects against inconsistent state laws, and the second protects against laws that would regulate the subject matter of section 1681c—the content of consumer reports. The Court concluded that second provision showed the intent of Congress.
Importantly, the Court expressly disagreed with a contrary decision from the First Circuit Court of Appeals in CDIA v. Frey that concluded only inconsistent state laws are preempted by the FCRA. Noting that the legislative history shows the importance Congress placed on national uniformity, Judge Pitman found the legislative history to be strong evidence of Congress’s intent: to expressly preempt not only inconsistent state laws, but also state laws that would restrict the inclusion of adverse items of information in consumer reports.
This decision is a big win not only for CDIA and our members, but for the entire credit ecosystem. There should be one national standard governing how information is provided to consumer reporting agencies and what can appear on a credit report. Congress struck a careful balance in the FCRA that allows states to regulate only in limited areas.
The root of the medical-debt problem is the healthcare system, not the credit reporting system. Removing the information doesn’t erase the debt — consumers still owe it and face collections; hiding it can lead consumers to take on debt they can’t repay and leave lenders with an incomplete risk picture.
To support consumers, the NCRAs voluntarily made changes to help consumers with medical debt in 2022, and those policies remain in effect. Today, paid medical collection debt is no longer reported; unpaid medical collection debt under $500 is excluded; and unpaid debt over $500 does not appear until it is at least one year old. Together these removed nearly 70% of medical collection debt tradelines.
Getting credit reports right for consumers is our most important job. Consumers, credit bureaus, banks and regulators all share one common goal: credit reports should be as accurate and reliable as possible. Consumer reports tell the story of our financial backgrounds and individual choices and reflect realities outside individual control; they give a reliable snapshot of how we have used credit.
In lieu of a patchwork of inconsistent state laws, CDIA and our members support a national, comprehensive, preemptive consumer reporting system that enables consumers to interact with businesses, government agencies, and employers with confidence that decisions will be consistent and based on complete and accurate data, not the consumer’s state of residence.