Yves here. The recent punitive actions taken by the Trump administration regarding medical debt underscore a troubling trend of fostering increased insecurity among Americans. The prevalence of medical debt and subsequent bankruptcies should be a point of national embarrassment. The new drive to incorporate such debts into credit scores is not only harsh but also unnecessary. Bankruptcy brings significant distress; no borrower would willingly choose that path unless absolutely necessary. Additionally, remember that many employers access credit reports as part of their hiring processes. Thus, the recording of medical debt and bankruptcies could have repercussions far beyond just limiting borrowing opportunities.
By Noam N. Levey. Originally published at KFF Health News
On Tuesday, the Trump administration took further steps to undermine protections for Americans grappling with medical debt by issuing guidance that could jeopardize ongoing state initiatives aimed at keeping such debt from appearing on consumers’ credit reports.
In recent years, more than a dozen states—including Washington, Oregon, California, Colorado, Minnesota, Maryland, New York, and much of New England—have established laws to prevent medical debt from negatively impacting consumers’ credit ratings.
Additionally, several states in conservative parts of the Midwest and Mountain West are considering similar measures. These discussions have been spurred by bipartisan concerns regarding how medical debt on credit reports complicates the acquisition of homes, cars, or even jobs.
Nationwide, around 100 million people are dealing with some form of healthcare-related debt, with millions facing unpaid bills totaling $10,000 or more.
In its new guidance, the Consumer Financial Protection Bureau (CFPB) asserts that federal law prohibits states from restricting medical debts in credit reports, claiming that this authority resides solely with the federal government.
“Congress intended to occupy the field of consumer reporting and displace state laws,” concluded the bureau in an “interpretive rule” signed by Russell Vought, the White House budget director and acting head of the CFPB.
This updated interpretation of the Fair Credit Reporting Act reverses prior policies promoted during Joe Biden’s presidency, which aimed to empower states to enhance protections for individuals with medical debt.
While the Trump administration’s latest action will not immediately invalidate existing state protections, advocates for patients and consumers caution that the new guidance may hinder progress elsewhere. This is particularly concerning as millions of Americans are on the verge of losing federal assistance that enables them to purchase health insurance through the Affordable Care Act, currently entangled in budget negotiations between congressional Republicans and Democrats.
“You’d be hard-pressed to find a crueler regulatory interpretation,” remarked Elisabeth Benjamin, vice president for the Community Service Society of New York, an organization that has advocated for medical debt protections in the state.
Lucy Culp, who oversees lobbying efforts for Blood Cancer United (formerly known as the Leukemia & Lymphoma Society), warned that the Trump administration’s guidance has the potential to deter states from enacting vital patient protections. “This rule will have a chilling effect on states’ willingness to pass these crucial safeguards,” she stated.
The CFPB has not responded to requests for comments regarding this matter.
One potential outcome of the new CFPB guidance is a rise in litigation challenging state restrictions on medical debt reporting.
Earlier this year, trade associations representing credit reporting agencies and debt collectors issued court challenges against regulations proposed by the Biden administration intended to remove medical debt from credit reports nationwide. They argued that the administration exceeded its authority in implementing these restrictions.
Had these federal restrictions been enforced, they would have benefited an estimated 15 million individuals. However, the Trump administration opted not to defend these new regulations, and a federal judge appointed by Trump ruled that they should be voided before they could take effect.
The Consumer Data Industry Association, which represents credit bureaus, did not respond to a request for comment on the new CFPB rule. However, the group has asserted that regulation of medical debt should be under federal jurisdiction.
“Only national, consistent standards can achieve the dual objectives of safeguarding consumers while ensuring accurate credit reporting,” stated Zachary Taylor, the group’s director of government relations, while addressing lawmakers in Maine this year before the state prohibited medical debts from appearing on credit reports there.
Expanded health insurance protections could help shield more Americans from falling into debt and negatively impacting their credit scores.
However, millions of Americans are anticipated to lose health coverage in the forthcoming years due to the tax and spending bill recently signed by the president.
“Millions of Americans are avoiding necessary medical care, postponing vital surgeries, and skipping essential treatments,” stated Allison Sesso, president and CEO of Undue Medical Debt, a nonprofit organization that acquires and alleviates patients’ debt while advocating for broader patient protections.
“This isn’t just a healthcare issue,” Sesso emphasized. “It’s an economic crisis that hampers families from building wealth and fully engaging in the economy. When credit scores take a hit from medical bills, it’s a loss for everyone.”
