CFPB rule to remove medical debt from credit reports blocked in court
A federal judge recently struck down a rule from the Consumer Financial Protection Bureau (CFPB) seeking to remove medical debt from credit reports. How will this affect medical debt in the future?
What was the CFPB rule?
In January 2025, the CFPB finalized a rule to eliminate billions of dollars in medical debt currently on credit reports. The rule would also prohibit medical debt from being included on medical bills and lenders from using medical information in their decisions. While patient and consumer advocate groups lauded the announcement, the CFPB immediately faced opposition in the form of lawsuits from credit reporting agencies and other industry groups and attempts to revoke the rule from Congress.
After the Trump administration came into power and fired CFPB head Rohit Chopra, the agency switched their position on the medical debt rule, siding with industry groups in court. It’s not clear whether the recent court decision vacating the CFPB rule will be appealed, given the lack of support from the administration.
U.S. District Court Judge Sean Jordan’s recent decision ruled that the CFPB’s policy exceeded the agency’s authority to modify the Fair Credit Reporting Act. This means that credit reporting agencies are allowed to use medical debt in credit reports, as long as they are “properly coded” to conceal the name of the provider and the medical services provided.
Why does credit reporting matter?
Medical debt can hurt patients financially when a medical provider or collections agency reports that debt to credit bureaus. More than one third of adults with medical debt report that this debt has negatively affected their credit score; this rate is higher for Black adults and those with lower incomes.
“My credit score is so low I can’t get financing for a vehicle causing me to lose my job due to lack of transportation.”
— 31 year old woman in Arkansas with $5,000-$10,000 in medical debt, KFF Medical Debt survey, 2022
Low credit scores make it harder to get a loan for education or homeownership, hindering long-term financial security. Nearly 30% of those with medical debt report that they have delayed buying a home or paying for college education for themselves or their children due to their debt. Credit reports can also be used by employers or landlords to screen potential job or tenant applications, threatening housing and job security as well.
Despite the potentially serious consequences of reporting debt to credit agencies, it is relatively common for hospitals to allow it. According to a Lown Institute analysis of a national sample of 2,500 hospital collections policies, 42% of hospitals allow the reporting of medical debt to credit agencies. Another 43% have no information in their policy about whether this is allowed and only 15% disallow this practice explicitly.
According to Lown Institute data, only 15% of hospitals write in their policy that they won’t report medical debt to credit agencies.
What about the states?
While the CFPB rule has been in flux for months, the states aren’t waiting to take action on this issue. More than a dozen states have already prohibited the reporting of medical debt to credit agencies.
The decision on the CFPB rule could potentially “preempt” state law, meaning that state laws that currently go against the Fair Credit Reporting Act (which allows the reporting of medical debt to credit bureaus) are not allowed.
States can strengthen their laws by targeting more actors than just credit reporting agencies. For example, states can focus on the “users” of credit reports such as lenders, employers, and landlords, prohibiting them from considering medical debt on credit reports in the decision they make. States can also regulate the contracts that health providers make with debt collectors, requiring that these contracts include a provision to not report medical debt to credit bureaus. Several states, including California, New York, Connecticut, and New Jersey already include these elements in their laws.
Where do we go from here?
As cuts to Medicaid and other public insurance plans loom on the horizon, many more people will be uninsured, exposing them to medical debt. This means millions more Americans could be subject to lower credit scores as a result of medical debt. State laws that protect patients from the impact of credit reporting and other extraordinary collection activities will become even more important in future years.
However, protecting patients from the downstream impacts of medical debt isn’t enough. Some studies of medical debt relief and wiping medical debt from credit reports have found an underwhelming impact of these actions, indicating that the damage may already be done by the time medical debt appears on credit reports. The best way to stop this harm is by preventing medical debt in the first place.
Among the upstream solutions that state and federal policymakers are considering include standardizing hospital financial assistance policies, implementing presumptive eligibility policies (screening patients for financial assistance rather than making them apply), improving transparency around hospital billing practices, implementing cost-sharing limits for marketplace plans, regulating hospital mergers and prices, and more. The way in which states implement new Medicaid work requirements will also have a large impact on medical debt in coming years.
For more information on drivers of medical debt and policy solutions, see our recent white paper, Past Due: How medical debt is harming Americans and the solutions we need now.