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The Trump administration is set to issue new guidance prohibiting states from removing medical debt from consumers’ credit reports. Fifteen states, including California, Colorado and Maine, have passed laws to limit medical debt reporting. But the Fair Credit Reporting Act, a federal credit reporting law, “generally preempts State laws that touch on broad areas of credit reporting,” the Consumer Financial Protection Bureau (CFPB) said in an interpretative rule set for publication on Tuesday, first reported by The Lever and Bloomberg Law. Newsweek has contacted the CFPB and the White House for comment via email. FThe Trump administration is set to issue guidance to prevent states from removing medical debt from consumers’ credit reports. File Photo(iStock) Why It Matters Medical debt is one of the leading causes of financial insecurity for American families, with Americans collectively owing an estimated $220 million in medical debt. Medical debt appears on the credit reports of about 15 million people, which can prevent them from securing loans, buying a house or getting a credit card. Advocates have warned the new rule would undo protections in 15 states that aim to protect consumers and worsen the burden of medical debt for many Americans. It comes as millions of Americans face skyrocketing health insurance costs unless Congress agrees to extend Obamacare subsidies—the key issue of contention that prompted the government shutdown on October 1. What To Know The new guidance says the FCRA, a law passed in 1970 which protects information collected by consumer reporting agencies, “has always preempted State law, but the scope of preemption has changed over time.” It adds that courts “are the ultimate arbiters of statutory meaning,” citing the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo that eliminated a doctrine deferring to regulators’ interpretation of unclear laws. The guidance “seems targeted at trying to override the new state laws banning reporting of medical debts on credit reports as well as nonconviction criminal records,” Chi Chi Wu, director of consumer reporting and data advocacy at the National Consumer Law Center, said in an email to Newsweek. The new guidance comes after a federal judge in July blocked a Biden-era CFPB rule barred outstanding medical bills from appearing on credit reports. The bureau had estimated the rule would have removed $49 billion in medical debt from the credit reports of 15 million Americans and that Americans with medical debt could see their credit scores increase by 20 points on average. But following a challenge from the financial industry, Judge Sean Jordan of the U.S. District Court of Texas Eastern District said that the bureau had overstepped its authority in enacting the rule under the FCRA, which “authorizes creditors to consider such information when making credit decisions.” What People Are Saying Chi Chi Wu, director of consumer reporting and data advocacy at the National Consumer Law Center, told Newsweek via email: “As millions face steep hikes in their insurance premiums and might lose coverage, which is what the whole government shutdown fight is about, Trump and [budget chief Russ] 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, not only get credit, but rental housing and jobs.” Julie Margetta Morgan, the president of Century Foundation who previously worked at the CFPB, wrote in an oped for MSNBC at the weekend: “When millions of people get notices about their premiums doubling on Nov. 1, they’ll be faced with the choice to either go uninsured or enroll in plans with higher deductibles and higher premiums. Both scenarios leave families one fall on the playground or one unexpected trip to the doctor away from massive bills. “When I worked on this issue at the Consumer Financial Protection Bureau during the Biden administration, we discovered that over half of all debts that were put on credit reports involved medical debt. Even more galling, we found that the medical debts reflected on credit reports are often wrong. Studies show that the vast majority, close to 80 percent, of medical debt reports have some sort of error. This causes millions of people to be harassed by debt collectors into paying bills they don’t actually owe.” What’s Next The new guidance is not legally binding, and its fate is likely to be decided in court.
