US Law Overrides State Bans on Medical Debt Reporting, CFPB Says

A federal credit reporting law generally takes precedence over state measures barring medical debt and other items on consumer credit reports, the Trump administration said.

Several states including Colorado, New York, and Maryland have passed medical debt reporting bans. But those laws are preempted by the Fair Credit Reporting Act and courts should overturn them, “consistent with Congress’s intent to create national standards for the credit reporting system,” the Consumer Financial Protection Bureau said in an interpretive rule set to be published Tuesday.

The new policy would replace preemption guidance the CFPB issued in 2022, according to the Federal Register filing. The CFPB in May withdrew the previous interpretive rule along with nearly 70 other guidance documents.

The latest change comes as Obamacare health insurance premiums are set to spike unless Congress can agree to extend federal subsidies, a key issue in the federal government shutdown that began Oct. 1.

Premium increases could leave millions of Americans without health insurance and struggling to pay bills. Allowing medical debt to appear on credit reports would add “salt to the wound” by making it harder for those consumers to get access to credit, said Chi Chi Wu, a National Consumer Law Center attorney who focuses on credit reporting issues.

The Biden-era CFPB finalized a separate, formal rule barring the reporting of medical debt at the federal level, but a federal judge in Texas vacated that rule in July.

The CFPB didn’t immediately respond to a request for comment.

Biden Focus

Medical debt was a major Biden administration focus, with the CFPB at the center of efforts to ease debt burdens. Around 15 million Americans had outstanding medical debt on their credit reports, with over $49 billion in unpaid debt subject to collection, the CFPB reported at the time.

Even as the CFPB was working at the federal level, states began adopting their own protections with the agency’s blessing.

But the Biden-era CFPB was wrong to determine that a preemption clause in the FCRA had a “narrow sweep” allowing for significant state regulation of consumer credit reports, the agency said in its new guidance.

“The FCRA does not compel—or even authorize—the Bureau to provide its legally binding views on preemption,” the interpretive rule said.

The three biggest nationwide credit reporting companies—Equifax Inc., Experian Plc, and TransUnion—have already taken steps to vastly reduce medical debt on credit reports, including removing all debt that had been repaid and halting the reporting of debts under $500 that were referred to collectors.

Removing larger debts from credit reports, on the other hand, can hide information that lenders need to consider when issuing mortgage, auto, and other loans, the industry has argued.

Loper Fight

Courts, not the CFPB, should be the arbiters of laws such as the FCRA, the agency said in its latest guidance. It cited the US Supreme Court’s 2024 Loper Bright Enterprises v. Raimondo decision that eliminated a decades-old doctrine deferring to regulators’ interpretation of unclear laws.

But Loper is also likely to make judges more skeptical of the CFPB’s new preemption interpretation, Wu said.

The CFPB in the Federal Register filing acknowledged that its interpretive rule isn’t legally binding.

Judges are also likely to consider the CFPB’s switch in positions—with the reversal coming about three years after issuing its previous interpretive rule—when reviewing challenges to state credit reporting laws, Wu said.

“They rest on how persuasive they are, how much based on agency expertise they are,” she said.