CFPB Vs. States That Are Banning Medical Debt On Credit Reports

Overview of CFPB’s Actions on Medical Debt Reporting

The Consumer Financial Protection Bureau (CFPB) has recently issued a rule that challenges state laws prohibiting the reporting of medical debt on credit reports. This move affects 15 states that have enacted such bans.

Key Points of the CFPB Rule

• Preemption of State Laws: The CFPB’s interpretive rule states that the Fair Credit Reporting Act (FCRA) preempts state laws that restrict the inclusion of medical debt in credit reports. This means that federal law takes precedence over state regulations in this area.
• Impact on Consumers: Advocates warn that allowing medical debt to appear on credit reports could worsen financial insecurity for millions of Americans already burdened by medical expenses. Approximately 14 million people owe more than $1,000 in medical debt, with 3 million owing over $10,000.
• Previous Guidance: This new direction marks a significant shift from the previous administration’s stance, which allowed states to regulate credit reporting as long as they did not conflict with federal law.

Implications for States and Consumers

• Legal Challenges: The CFPB’s rule is not legally binding but may influence ongoing legal battles in states like Maine and Colorado, where similar bans are in place.
• Consumer Advocacy Concerns: Consumer advocates argue that including medical debt in credit reports is punitive and does not accurately reflect a person’s creditworthiness. They emphasize that medical debt often arises from unexpected health issues and should not dictate financial futures.

This development highlights the ongoing debate over medical debt and its implications for consumer credit and financial stability.