New Federal Rule Threatens State Protections
The Trump administration has delivered a significant blow to consumer financial protections by issuing an interpretive rule that directly challenges state laws prohibiting medical debt from appearing on credit reports. Published in the Federal Register on Tuesday by the Consumer Financial Protection Bureau (CFPB), this guideline has immediately drawn fierce criticism from patient advocacy organizations and consumer protection groups nationwide.
While the interpretive rule lacks direct legal enforcement power, legal experts warn it will significantly influence ongoing and future litigation challenging state-level medical debt protections. This development represents a critical turning point in the ongoing debate between federal oversight and state-level consumer protections in the credit reporting industry.
Understanding the CFPB’s Interpretive Rule
The Federal Preemption Argument
The newly issued interpretive rule establishes the federal government’s position that state laws restricting credit report content are preempted by the Fair Credit Reporting Act (FCRA). This decades-old federal statute has long served as the cornerstone of credit reporting standards and consumer protections across the United States.
According to the CFPB’s interpretation, Congressional amendments to the FCRA over the years demonstrate clear intent to create a unified national regulatory framework rather than allowing a fragmented “patchwork system of conflicting regulations” across different states.
Scope of Federal Authority
The agency argues that states lack authority to determine whether specific types of information—including medical debt and non-conviction criminal arrest records—should be excluded from consumer credit reports if such exclusions weren’t explicitly outlined in the original FCRA legislation.
Impact on State Medical Debt Laws
Current State-Level Protections at Risk
Sixteen states have successfully enacted legislation banning medical debt from credit reports, with similar bills pending in at least two additional states. Chi Chi Wu, director of consumer reporting and data advocacy at the National Consumer Law Center, issued an urgent warning: “Advocates in states that have already banned medical debt on credit reports or the reporting of non-conviction records should be alert to potential legal challenges.”
Wu’s concerns are already materializing, with legal challenges currently underway in Maine and Colorado targeting state medical debt protections.
The 2022 vs 2025 Policy Reversal
A Complete Policy Flip
This interpretive rule represents an almost complete reversal from the CFPB’s 2022 guidance issued under the Biden administration. That previous rule specifically identified medical debt and non-conviction criminal records as areas where states retained regulatory authority. The Trump administration withdrew this 2022 interpretive rule in May, clearing the path for the current policy.
The Biden Administration’s National Ban Attempt
During the final days of the Biden presidency, the CFPB finalized a rule that would have banned medical debt inclusion nationwide across all credit reports. However, industry trade groups successfully challenged this rule in court, and a judge overturned it in July—a decision subsequently endorsed by the restructured CFPB under acting Director Russell Vought.
Medical Debt Statistics and Research
The Scale of the Problem
Research from 2024 revealed that 15 million Americans collectively carry $49 billion in outstanding medical bills appearing on their credit reports. This persistence occurs despite voluntary commitments by the nation’s three major credit reporting companies to stop reporting smaller medical bills and resolved medical debts.
Geographic and Economic Disparities
The burden of medical debt disproportionately affects low-income communities and Southern states, where state-level protective legislation remains less prevalent. Advocates for medical debt exclusion cite extensive research demonstrating that medical debt offers limited predictive value for credit underwriting decisions. Recent investigations have also exposed widespread billing errors within reported medical debts.
Stakeholder Reactions and Concerns
Consumer Advocacy Opposition
Julie Morgan, president of The Century Foundation and former CFPB associate director under President Biden, condemned the new guidance: “We shouldn’t be letting an error made by a hospital or an insurance company impact someone’s ability to buy a house or get an education. This guidance is another step in President Trump’s efforts to rig the system against patients by blocking states from stepping in to protect their own residents.”
Allison Sesso, president and CEO of Undue Medical Debt, characterized the interpretive rule as “a step backward for protections against crippling medical costs.” She emphasized that medical debt represents “an economic crisis that’s keeping families from building wealth and fully participating in the economy.”
Industry Support
The Consumer Data Industry Association, representing credit reporting agencies, applauded the CFPB’s action. The trade group argued that “allowing divergent state regulation would fragment the consumer-reporting market across state lines, potentially increasing borrowing costs for consumers based on where they live rather than their credit risk.”
Alternative Solutions for States
Despite federal challenges, Chi Chi Wu outlined potential workarounds that states could implement while avoiding FCRA preemption issues. States could require that medical debt on credit reports be excluded from consideration by creditors, landlords, and employers during decision-making processes.
Additionally, states might mandate that healthcare providers include contractual provisions with debt collectors explicitly prohibiting medical debt reporting to credit bureaus.
Future Implications for Consumers
Wu emphasized that interpretive rules carry only “persuasive value” in legal proceedings. Given that the CFPB held the opposite position just three years ago, she argues this new interpretation “should not be persuasive at all.”
However, the broader economic context amplifies concerns. As millions face steep insurance premium increases and potential coverage losses, Wu warns that “Trump and Vought don’t just want to saddle struggling consumers with medical debt. They also want to make sure the medical debt trashes their financial report cards, making it harder for them to get credit, rental housing, and jobs.”
Survey data from Undue Medical Debt demonstrates that support for state-level medical debt restrictions enjoys widespread popularity across all political affiliations, suggesting continued public pressure for consumer protections.
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