A federal judge can now weigh additional arguments challenging the legality of a Consumer Financial Protection Bureau rule that would prevent medical debt from being factored into consumers’ credit reports, following the filing of more briefs in the federal case last week.

U.S. District Judge Sean Jordan requested the briefs be filed by last Friday for the lawsuit filed in January in Texas by two trade associations for credit unions and credit bureaus. The CFPB has stopped defending the rule, and last month Jordan allowed the National Consumer Law Center to intervene and defend the rule.

Jordan is expected to rule on the matter by Aug. 11, the date his most recent stay of the CFPB’s medical debt rule expires. In April, the bureau asked Jordan to issue a consent judgment for plaintiffs and vacate the rule.

The Biden-era CFPB, under former Director Rohit Chopra, said that the rule would erase $49 billion in medical debt from credit reports for about 15 million people. The bureau had estimated that the rule would lead to 22,000 additional mortgages annually, and that consumers with medical debt could see their credit scores increase by 20 points, on average.

Scores from the credit-reporting agencies directly affect consumers’ access to credit and borrowing costs across an array of products, from credit cards to auto loans, mortgages and the interest rates lenders assess.

Following a June 11 hearing, Jordan sought additional legal briefs from the plaintiffs and CFPB, as well as the NCLC, which represents Harvey Coleman, a District of Columbia resident, and David Deeds, a truck driver in Texas.

Coleman incurred a $1,300 debt for his son’s medical emergency, while Deeds was unable to pay a $60,000 bill for surgery last year to treat his pancreatic cancer, according to the law center’s motion to intervene.

Jordan, who presides in U.S. District Court for the Eastern District of Texas, requested the parties’ briefs on the legal implications of the intervening defendants’ refusal to consent to the judgment the bureau and plaintiffs want, and on the court vacating the rule.

The lawsuit was filed in January by the Consumer Data Industry Association, which represents credit-reporting agencies, and the Cornerstone Credit Union League, the trade association for about 600 credit unions in Arkansas, Kansas, Missouri, Oklahoma and Texas.

The bureau’s effort to win a consent judgment to repeal the medical debt rule “is contrary to its responsibilities to engage in notice-and-comment rulemaking under the Administrative Procedures Act,” the law center wrote in its brief June 16. “The CFPB’s about-face both fails to follow the proscribed procedures set forth in the statutes and is arbitrary and capricious because it is unsupported by adequate reasoning.”

Several parts of the rule are unaffected by the arguments in the case, which leaves the court unable to vacate the entire rule, the intervenors also argued.

“Nothing in Intervenors’ discussion of statutory history changes the fact that the Medical Debt Rule violates the plain terms of the statute,” the plaintiffs responded Friday in their brief, urging Jordan to either adopt the proposed consent order with the CFPB and vacate the rule or to grant plaintiffs summary judgment. 

Many of the arguments in the broader case center around whether the Fair Credit Reporting Act prohibits the use of consumers’ medical debt information.

The rule, enacted in January by the Biden administration, “upends the statute’s careful balancing of consumers’ privacy interests with the benefits of well-informed credit underwriting,” the bureau said in a May 30 legal brief asking the court to vacate the rule. A regulation to implement a statute “cannot lawfully contradict that statute, and the Rule cannot prohibit activities” that the FCRA authorizes, the CFPB said.

In 2023, the three major credit reporting bureaus – Experian, Equifax and TransUnion – said they had removed medical debts less than $500 from consumers’ credit reports.

The CFPB’s decision on the medical debt rule is the latest in a series of cases that the bureau has declined to defend under Acting Director Russell Vought, who has sought to narrow the agency’s scope and dramatically reduce its staffing.

“Information about unpaid medical debts is an important element in assessing a consumer’s ability to pay,” Dan Smith, the CDIA’s president and chief executive, said in a May 1 statement welcoming the CFPB’s decision not to defend the rule. “This is the right outcome for protecting the integrity of that system.

The CFPB had argued previously that unpaid medical bills provide lenders “little predictive value” about a borrower’s ability to repay other debts.