CFPB General Counsel Seth Frotman wrote to Massachusetts state legislators supporting HD. 3503 and SD. 1878, which would prohibit medical creditors and debt collectors from reporting medical debt to consumer reporting agencies and ban consumer reporting agencies from including medical debt information on credit reports. The letter comes just weeks after the CFPB finalized a federal regulation on January 7, 2025, that similarly bans medical bills on credit reports used by lenders.
The CFPB argued that medical debt has "limited predictive value" for assessing creditworthiness and is "rife with unreliable information." According to the agency's research, 66 percent of consumers with medical debt problems acquired their debt from unexpected emergencies or acute medical needs. "The most common concerns from consumers in complaints to the CFPB about the collection of medical bills allege that the debt being collected was already paid, does not belong to them, or is otherwise incorrect," Frotman wrote.
The proposed Massachusetts legislation would align with recent state-level efforts to restrict medical debt reporting. Colorado and New York passed similar laws in 2023, and several other states are considering comparable measures. The CFPB noted that its 2022 interpretive rule clarified that such state laws would generally not be preempted by federal credit reporting laws, with "narrow" preemption under the Fair Debt Collection Practices Act and Fair Credit Reporting Act.
Industry challenges to state medical debt reporting restrictions have been unsuccessful in federal court. The First Circuit Court of Appeals rejected a challenge to Maine's Medical Debt Reporting Act in Consumer Data Industry Association v. Frey in February 2022, while the Ninth Circuit denied a challenge to Nevada's medical debt collection restrictions in Aargon Agency, Inc. v. O'Laughlin in June 2023. Both courts found that federal law does not categorically preempt state laws governing credit report information.
"The purpose of the credit reporting system is to assess credit risk, not to coerce people to pay debts they may not owe," Frotman wrote. He argued that consumers often discover erroneous medical bills in collections only when applying for mortgages or car loans, forcing them to choose between fighting the inaccuracy while potentially recovering from illness or paying questionable debts without adequate review time.
The CFPB's new federal regulation has already faced legal challenges, with two lawsuits filed in Texas following its finalization. Major credit score provider VantageScore eliminated medical collection data from one scoring model in August 2022, noting it expected "minimal" impact on performance for most consumers. National consumer reporting companies also announced in March 2023 they would stop reporting some, but not all, medical bills.