CFPB supports industry groups, asks judge to overturn medical debt rules
The Consumer Financial Protection Bureau asked a judge to overturn a Biden-era rule aimed at keeping medical debt from appearing on credit reports.
Lawmakers in several states are working to expand medical debt protections for patients even after the Trump administration reversed course and told states it had no authority to take action on credit reporting.
Nevertheless, in Alaska and Michigan, lawmakers are moving forward with bills that would exclude medical debt from consumer credit reports.
The attorneys general of California and Colorado said they support credit reporting laws enacted in those states in recent years, even though Colorado faces lawsuits from debt collectors challenging those laws.
Lawmakers in Indiana and Ohio have dropped proposals to remove medical debt from credit reports, but are pushing bills that would extend other protections to patients who can’t pay their medical bills.
“74% of Alaska voters believe medical debt should not be included on credit reports,” said Democratic state Rep. Genevieve Mina, who is sponsoring the state’s medical debt initiative. “I’m not going to wait in court for medical debt issues.”
An estimated 100 million Americans have health insurance debt. And a growing number of red and blue states are enacting laws to protect patients.
But federal policy toward such debt boomeranged this year when President Donald Trump’s administration chose not to defend a federal regulation that would remove medical debt from everyone’s credit scores. And in October, President Trump’s Consumer Financial Protection Bureau said states did not have the authority to regulate consumer credit reports.
“In some ways, this is a 180-degree reversal,” said Chi Chi Wu, a lawyer at the National Consumer Law Center, which advocates for low-income people. She called the Consumer Financial Protection Bureau, now headed by Project 2025 architect Russell Vought, the “evil twin” of its predecessor under President Joe Biden.
The department did not respond to a request for comment.
Eight days after the new federal guidance, debt collectors filed a lawsuit challenging Colorado’s Medical Debt Credit Reporting Act of 2023, which for the first time requires some or all medical debt to be removed from credit reports.
Scott Purcell, CEO of ACA International, a debt collection industry group and a plaintiff in the Colorado case, said forgiving debts would make it harder to gauge creditworthiness and make creditors view everyone as a riskier bet.
His group’s lawsuit also argues that Colorado’s law violates the First Amendment by suppressing “true commercial speech.”
Colorado Attorney General Phil Weiser (D) called the lawsuit outrageous in a statement to KFF Health News. His office said it “strongly opposes any effort to strip away important medical debt protections.”
In California, Attorney General Rob Bonta is also sticking to state law, regardless of how federal authorities interpret states’ rights. “Let me be clear: this is still California law,” Democrats told voters in a Nov. 13 warning.
Other states still considering credit reporting laws are adjusting their strategies to account for lawsuits and the Trump administration’s moves, with Congress either dropping plans to exclude medical debt from credit reports or amending such laws.
Wu said her organization recognizes that changes in the federal government are coming and has already asked state legislatures to make pending credit reporting bills more litigious by looking upstream and downstream of credit reporting agencies. For example, states could tell landlords, employers and other credit report viewers that they can’t use a person’s medical debt history to make decisions, Wu said. States can also require health care providers to include in their contracts with debt collection agencies limits on what credit reporting agencies can tell about the bills they collect.
“You often hear providers say, ‘Well, we don’t want to discredit the patient,'” she says. “Tell the debt collector, ‘Please don’t report this.'”
Alaska’s law has elements of both. Prohibits landlords from determining potential tenants based on medical debt history and prohibits health care providers and collectors from informing credit bureaus about patient debts.
Elsewhere, state lawmakers have rejected attempts to pass credit reporting provisions in bills. Indiana Sen. Fadi Kadoura (D) has proposed a medical debt measure that would, among other things, cap interest rates and limit wage garnishments to prevent people from losing their homes for unpaid medically necessary procedures. But after failing to include credit reporting in a similar bill last year, he and his colleagues made a tactical decision to exclude credit reporting.
“That’s out of line with legislative realism,” Kadura said. “We want to ensure that a bill that provides many benefits to tens of thousands of families is not invalidated just because one provision cannot be implemented.”
In Ohio, Democratic state Rep. Michele Grimm made a similar calculation. She is working on measures to ban wage garnishment for medical debt, cap interest rates on such debt at 3% and remove it from credit reports. She said she and other lawmakers recently removed the credit reporting portion.
“It’s better to give something than nothing,” Grimm said. “Wage garnishment is still prohibited, but it is a very aggressive and more common practice than you might think. And there are interest rate caps.”
A recent study by KFF Health News found that in Colorado alone, thousands of people each year have their paychecks garnished to pay off medical bills, and that some people who go to court for medical debt don’t actually owe the money.
Legislative efforts to protect people from the effects of medical debt are often bipartisan, but that doesn’t mean they’re easy to pass. Even before the Consumer Financial Protection Bureau changed its stance on credit reports, several measures hit hurdles in conservative states this year, with bills aimed at removing medical debt from credit reports failing in Wyoming and South Dakota.
Americans are primarily protected from having their credit scores hurt by small amounts of medical debt. In 2023, the three major credit bureaus – TransUnion, Equifax and Experian – voluntarily chose to remove medical debts under $500 from credit reports, and the companies’ trade group, the Consumer Data Industry Association, confirmed they are still doing so.
Still, lawmakers in several states said they are considering whether and how to pre-empt federal guidance with legislation to address additional, larger medical debts that appear on credit reports.
“We know we need to step up our efforts,” Democratic state Sen. Sarah Anthony of Michigan said of the bill she is co-sponsoring. She doesn’t know what that will look like, but consumer advocates, including Libby Benton, hope the measure will follow Mr. Wu’s playbook.
“This is not a debt that people choose to take on,” said Benton, director of the Michigan Poverty Law Program. “People may choose to buy a huge pickup truck, but that’s the wrong financial decision.” “People don’t choose to have emergency heart bypass surgery.”
But both can end up on your credit report.
KFF Health News is a national newsroom producing in-depth journalism on health issues, one of KFF’s core operating programs and an independent source for health policy research, polling and journalism.
