Medical debt on credit reports: The CFPB targets 15 state laws
Fifteen states that prohibit the reporting of medical debt on credit reports now find themselves at odds with restrictions that a consumer protection law seeks to end.
Delaware, Maine, Maryland and Oregon have all passed laws this year that exclude medical bills from residents’ laws, joining others with existing laws that require medical records not to be paid for in financial records. There is a reason for this burst of activity: In July, a judge struck down a biden-Era federal law that imposed about $49 billion in medical debt from US reports.
That development, which followed the CFPB’s turnaround in credit reporting when President Donald Trump took office, provided fuel for federal efforts at the federal level.
If these federal laws are put in place, millions of consumers with unpaid medical debt will see negative marks appear – or return – to their credit reports. Even if the new scoring models emphasize medical debt as a factor, that will lower the credit scores, making those legal battles with the highest numbers of American wallets.
A ‘fantastic’ tale of two CFPPS
Brief History: On Jan. 7, during Joe Biden’s Duck for President, the CFPB announced a final rule to remove all medical debt from credit reports. CFPB Director ROHIT Chohit Chowra said in the announcement that “sick people should not have had their financial future.”
The law is scheduled to go into effect in March but it did. When Trump’s second term began, he began to dismantle the CFPB and go back on the medical debt ban. This policy was enacted in the summer, and the states took up the cause.
However, in late October, the CFPB issued an interpretive rule stating that appropriate credit reporting practices reflect federal regulations that “affect broad areas of credit reporting.”
While the law is not legally binding, it set the stage for federal laws to be challenged in court – which has already happened.
Proponents of allowing medical debt on the credit report are actually friendly because it means lenders can make sure they don’t have too much debt. They also say that medical opportunities may arise from credit reports that prompt patients to pay good debts to hospitals, which supports hospitals and the financial strength of financial providers.
“The issue of medical debt in the last five years is one of these data that was pressed step-by-step in the reporting – all the way until there was a very high chance, where there was PRINCRENCT CISHT at the risk of Lexisnexis.
This tension between the states and the administration of medical bills is just one of the many forced disputes under the CFPB’s new leadership. (Other examples include the tug-of-war over federal lending regulations and the enforcement of consumer protection laws.) The CFPB is now “trying to dismantle many locally made regulations about them Four years ago anyway,” said the king.
In fact, in issuing its new interpretation rule, the CFPB removed the previous interpretation rule used by many agencies to regulate credit reports.
Medical debt under $500 does not apply – yet
During the bid lead, the CFPB took aim at the use of medical debt in credit reporting and credit decisions, and officials discuss that they should basically look at this type of debt in debt: it always involves health.
Bid management secured some winnings. In April 2023, the Major Credit Bureaus confirmed that they had completed removing medical debt from credit reports after agreeing to a quick review.
That protection remains to this day, and there is a chance it sticks.
North Carolina Gov. Josh Stein sent a letter to Custom, Equifax and TrunUnion earlier this month urging them to confirm that they remain committed to ending “pay or be damned” on credit reports. He also asked that they continue to issue loans under $500 and less than a year ago.
Those guardrails have “unlawful access to millions of American consumers who have now expanded their options for employment, insurance, housing and consumer finance,” Stein wrote in the letter.
In a letter responding to Stein’s office’s allocation of funds, Equifax acknowledged the voluntary nature of medical debt and upheld its other commitments to consumers, including the removal of medical debt from credit reports.
“We remain committed to the changes we have already implemented and have no plans to change our current practices related to medical billing reporting at this time,” the letter said.
North Carolina is not one of the 15 states that have laws that prohibit medical debt from credit reports. Still, “Stein Stein is disappointed that the CFPB wants to roll back the progress made in protecting consumers from the burden of medical debt,” said a spokesperson for the department.
What’s next for medical debt on credit reports
The Biden-Era CFPB rule did not lead to the removal of all medical debts from credit reports, but it forced the Trump administration to use the political consequences of restoring the popular policy.
Groups including the consumer data industry association, which represents the credit bureaus, pointed out that the CFPB has never had the power to erase all medical debt from credit reports. Those are the questions that will now be examined by the courts.
On November 5, ACA International – a trade group for credit reporting – filed a lawsuit challenging the Colorado Law without medical debt from credit reporting. The group’s CEO, Scott Purcell, points out that national credit reporting standards were established by the Fair Credit Reporting Act back in 1970.
Saying, he says, It was not intended to have the authority to reduce the medical debt in the credit report.
“The reporting allowance in the FCRA, combined with Congress’s stated intent in the state to ensure accurate credit reporting, makes a blanket ban on financial statements inconsistent with the state’s goals,” he wrote in an emailed statement to the Financial Times. “The country can’t choose the right credit information.”
Purcell says he hopes all these laws will be struck down.
“Colorado’s law is at the top of a slippery slope of states blocking the reporting of certain categories of debt to score political points,” he adds. “How is it prevented from reporting a person’s payment or employment history that is any different than their medical billing information?”
Consumer protection groups are pushing back, suggesting that it’s unfair to penalize an individual for simply having medical on their credit report, since that debt is often due to a health problem or an overdue medical bill.
The Biden administration said that patients are often exposed to medical billing, facing surprise costs for services that are often completely unknown until the truth. In addition to its voluntary nature, lawyers and Democratic officials point to studies that have shown medical debt is not a reliable predictor of a person’s ability to repay a loan or pay back credit cards.
Now, as the political battle plays out in the courts, Americans are left to wait to see what laws will bring medical debt back on credit reports going forward.
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