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Key Takeaways
- The Consumer Financial Protection Bureau has issued a new interpretive rule that says that a federal law should take precedence over state laws that ban medical debt from credit reports.
- The 15 states that ban medical debt from appearing on credit reports are: California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont, Virginia and Washington.
- While interpretive rules are not legally binding, one expert notes that these state laws will likely face court challenges that may decide their fate.
A new move from the Trump administration is attempting to include medical debt on credit reports, even though 15 states have banned credit bureaus from doing just that. Delaware’s law, in fact, took effect just this week.
According to an interpretive rule released by the Consumer Financial Protection Bureau (CFPB), a federal law known as the Fair Credit Reporting Act (FCRA) can overrule state laws that prevent medical debt from appearing on credit reports.
As of 2024, over one in three (36%) households in the U.S. had medical debt. About one in five (21%) had a past-due medical bill, and a similar number (23%) were paying a medical bill over time to a provider.
“In general, we should always try and find a way to make the economy more fair. And this doesn’t do that,” said Adam Rust, Director of Financial Services at the Consumer Federation of America. “People shouldn’t be [denied] a job, secure housing, or a loan just because they got sick.”
In the new interpretive rule, the CFPB claims that the FCRA preempts these state laws. However, since it’s an interpretive rule, it’s not considered legally binding, according to Kaye Pestaina, Director and Vice President of the Program on Patient and Consumer Protection at KFF, a nonprofit health policy organization.
The rule “won’t have immediate impact on consumers, since the state laws are still in place,” Pestaina said. “It is likely that state laws that prevent medical debt from being included on credit reports will be challenged in litigation, ultimately leaving it to the courts to decide whether these state laws can still be implemented.”
What This Means For You
While this new interpretive rule doesn’t nullify state laws, legal challenges could result in these laws being struck down. This could be especially detrimental to your financial health if you have large amounts of medical debt, as it might make it more difficult to get credit.
While three of the major credit reporting agencies—Equifax, Experian, and Transunion—stopped including medical collections debt balances worth less than $500 on credit reports in 2023, there are no federal laws that ban medical debt from appearing on credit reports, notes Pestaina.
Those who support including medical debt on credit reports believe that it can be helpful in determining whether potential borrowers are likely to pay off debt.
This change also comes amid a government shutdown over the status of the Affordable Care Act subsidies, which are set to expire at the end of this year. If the subsidies are allowed to expire, millions of people could see their health insurance premiums climb and some, as a result, may forgo having insurance.
“As health insurance costs go up and health care prices continue to increase—a major illness can have bigger implications for someone’s financial health,” said Pestaina.
Earlier this year, the Biden administration passed a federal rule that would remove medical debt from credit reports, but this was overturned by a federal judge in Texas just months later.
