Federal Agency Strikes Down State Protections, Threatening Financial Futures of Millions
In a shocking regulatory reversal that consumer advocates are calling “cruel” and “salt to the wound,” the Trump administration has issued new guidance that threatens to undo serious protections for Americans struggling with medical debt. The Consumer Financial Protection Bureau’s latest interpretive rule directly challenges state laws that shield consumers from having medical debt appear on their credit reports, a move that could impact up to 100 million Americans currently grappling with healthcare-related financial burdens.
The Rule That Could Ruin Credit Scores Nationwide
The controversial guideline, published in the Federal Register, declares that federal law overrides state regulations, preventing medical debt from appearing on consumer credit reports. While not immediately rolling back existing state protections, the guidance represents a complete about-face from Biden-era policies that empowered states to expand consumer safeguards.
Over a dozen states, such as California, Colorado, Minnesota, Maryland, New York, and several across New England, have recently passed laws to stop medical debt from impacting people’s credit scores. These bipartisan efforts were driven by concerns that medical debt on credit reports makes it significantly harder for people to secure homes, cars, or even jobs.
The timing couldn’t be worse. Millions of Americans could soon lose federal subsidies that help them afford health insurance under the Affordable Care Act, as the ongoing budget dispute between Republicans and Democrats continues.
A $220 Billion Crisis Getting Worse
The numbers paint a grim picture of America’s medical debt emergency. According to estimates from the Kaiser Family Foundation, Americans owe around $220 billion in medical debt. In several Republican-led states, including South Dakota, Mississippi, West Virginia, and Georgia, about one in six residents are struggling with unpaid medical bills.
About 15 million people have medical debt on their credit reports, with millions burdened by $10,000 or more in unpaid bills. These aren’t frivolous debts, they represent the simple misfortune of getting sick unexpectedly and facing a medical system riddled with insurance complications, delays, and billing errors.
Why Medical Debt Is Different?
Medical debt is one of the most frequently challenged items on credit reports. Insurance payments often take time to process, and when coverage falls short, patients are left with bills they can’t easily afford for treatments they’ve already received. Studies reveal a shocking truth: close to 80 percent of medical debt reports contain some type of error, causing millions to be harassed by debt collectors for bills they don’t actually owe.
“You’d Be Hard-Pressed to Find a Crueler Regulatory Interpretation”
Consumer protection groups have sharply criticized the move. Elisabeth Benjamin, vice president of the Community Service Society of New York, called it “one of the harshest interpretations” of the rules to date.
Lucy Culp, who oversees state lobbying efforts by Blood Cancer United (formerly the Leukemia & Lymphoma Society), warned that “this rule will have a chilling effect on states’ willingness to pass these critical patient protections”.
Chi Chi Wu, an attorney specializing in credit reporting issues at the National Consumer Law Center, told media outlets that the Trump administration’s assault on medical debt protections adds insult to injury as tens of millions face surging healthcare premiums. She emphasized that the administration doesn’t just want to burden consumers with medical debt, they want to make sure it destroys their credit scores, making it harder to obtain credit, rental housing, and employment.
Credit Bureaus and Industry Groups Celebrate the Change
Not everyone is mourning the new guidance. The Consumer Data Industry Association, which represents credit agencies, welcomed the new guidance from the Trump administration, with association president Dan Smith stating, “There should be one national standard to govern how information is provided to consumer reporting agencies”.
The group representing major credit bureaus such as Equifax, Experian, and TransUnion argues that federal law overrides state regulations in its attempt to overturn Maine’s medical debt law.
The credit bureaus had already made some voluntary changes. In 2023, the three major credit bureaus announced that they would stop including medical debts under $500 on credit reports, a change they said would remove about 70% of all medical debt from consumer records. However, several states went much further by banning medical debt reporting entirely.
Biden’s Efforts Demolished
The new interpretive rule represents a dramatic reversal from the previous administration’s stance. The 2022 interpretive rule issued by the CFPB under the prior administration specifically outlined medical debt and other content areas as open to state regulation, but was withdrawn by the CFPB in May.
Additionally, the Biden administration had finalized a separate federal rule that would have removed medical debt from credit reports nationwide. The rule would have removed an estimated $49 billion in medical bills from the credit reports of about 15 million people. However, trade groups challenged this in court, and a federal judge in Texas struck it down in July, a decision the Trump-era CFPB supports.
Legal Battles Ahead as States Dig In
While not legally binding on its own, the publication is likely to play a factor in ongoing or future litigation against states’ laws, with legal challenges already underway in Maine and Colorado.
The CFPB’s new position argues that Congress intended to create national standards for the credit reporting system under the Fair Credit Reporting Act, and that state laws interfere with that intention. The guidance also notes that courts, not the CFPB, should be the ultimate arbiters of statutory meaning, citing the Supreme Court’s 2024 decision eliminating deference to regulatory interpretations.
There are currently 16 states with laws on the books that ban medical debt from credit reports, and similar legislation is pending in at least two more.
Perfect Storm: Rising Premiums, Disappearing Coverage, and Damaged Credit
The guidance arrives at a particularly treacherous moment for American families. Julie Margetta Morgan, president of The Century Foundation and former CFPB official under Biden, warned that when millions receive notices about their insurance premiums doubling, they’ll face an impossible choice: go uninsured or enroll in plans with higher deductibles and premiums. Both scenarios leave families one unexpected medical emergency away from crushing bills.
Allison Sesso, president and chief executive of Undue Medical Debt, a nonprofit that buys up and retires patients’ debts, stated: “Millions of Americans are avoiding medical care, putting off needed surgeries, skipping essential treatments”.
The new guidance makes sure that when these Americans inevitably accumulate medical debt, it will follow them for years, damaging their ability to build financial stability and achieve basic life milestones like homeownership.
As the legal battles unfold and millions brace for healthcare cost increases, one thing is certain: the fight over medical debt and credit reporting is far from over, with the financial futures of millions hanging in the balance.
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