Trump Administration Undermines State Protections for Medical Debt

The Trump administration has issued new guidance that could significantly weaken state laws designed to protect consumers from medical debt impacting their credit scores. This development, announced on Tuesday, threatens ongoing efforts by more than a dozen states, including California, New York, and Colorado, to shield their residents from the negative repercussions of unpaid medical bills.

According to the Consumer Financial Protection Bureau (CFPB), the federal government holds the exclusive authority to regulate credit reporting, asserting that state efforts to exclude medical debt from credit reports contradict federal law. In an “interpretive rule” signed by Russell Vought, the White House budget director and acting head of the CFPB, the agency concluded, “Congress meant to occupy the field of consumer reporting and displace state laws.” This interpretation reverses policies established under former President Joe Biden, which aimed to empower states to enhance protections for individuals facing medical debt.

Across the United States, approximately 100 million people are grappling with some form of health care debt, and millions are burdened by amounts exceeding $10,000. Advocates warn that the new guidance could halt advancements in state-level protections at a critical time, particularly as millions of Americans stand to lose federal assistance for health insurance through the Affordable Care Act. This aid is currently caught in a budget impasse between congressional Republicans and Democrats.

Elisabeth Benjamin, vice president for the Community Service Society of New York, characterized the CFPB’s action as “one of the crueler regulatory interpretations.” Her organization has been active in promoting medical debt protections in New York. Similarly, Lucy Culp, who oversees lobbying efforts for Blood Cancer United, cautioned that this guidance could deter other states from pursuing essential patient protections. Culp stated, “This rule will have a chilling effect on states’ willingness to pass these critical patient protections.”

The CFPB’s new guidance is likely to lead to increased litigation against state restrictions on medical debt reporting. Earlier this year, trade groups representing credit reporting agencies and debt collectors initiated legal challenges to regulations from the Biden administration that aimed to eliminate medical debt from credit reports nationwide. They contended that those regulations exceeded the federal government’s authority. Although the proposed changes could have benefited an estimated 15 million individuals, the Trump administration did not defend these regulations, leading to a ruling by a federal judge in Texas that dismissed them before they could take effect.

The Consumer Data Industry Association, which advocates for credit agencies, responded positively to the Trump administration’s guidance. In a statement, association president Dan Smith emphasized the need for a unified national standard governing the information provided to consumer reporting agencies.

While broader health insurance protections could alleviate financial burdens and prevent more Americans from accumulating debt, millions are expected to lose health coverage in the coming years due to recent tax and spending legislation signed into law in July.

Allison Sesso, president and chief executive of Undue Medical Debt, stated, “This isn’t just a health care issue. It’s an economic crisis that’s keeping families from building wealth and fully participating in the economy.” Sesso highlighted the impact of medical debt on credit scores, noting that when financial stability is threatened, it affects everyone in society.

As the debate continues over the regulation of medical debt and its implications for consumers, the future of state-level protections remains uncertain. The ramifications of the CFPB’s guidance could extend far beyond the credit reporting landscape, influencing access to essential health care services for millions of Americans.