In a letter dated this week to Representative Brian Mulder, CFPB General Counsel Seth Frotman expressed the agency's strong support for House Bill 1058, emphasizing that states play a "frontline role in protecting consumers from unscrupulous practices" and can enact laws that exceed federal protections. The proposed South Dakota legislation would completely bar medical debt reporting to credit bureaus, joining a growing number of states taking similar action.
Frotman argued that medical debt reporting causes substantial consumer harm because unpaid medical bills are "rife with unreliable information" and have "limited predictive value" for assessing creditworthiness. According to the CFPB, the most common consumer complaints about medical debt collection involve bills that were already paid, don't belong to the consumer, or contain other errors. "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.
The CFPB letter comes just two weeks after the agency finalized a sweeping federal regulation on January 7, 2025, that bans medical bills from credit reports used by lenders and prohibits lenders from using medical information in lending decisions. The federal rule has already faced legal challenges, with two lawsuits filed in Texas courts seeking to overturn the regulation.
The South Dakota bill reflects a broader trend among states to restrict medical debt reporting despite industry opposition. Colorado and New York passed similar legislation in 2023, and several other states are considering comparable measures. Federal courts have consistently rejected industry arguments that the Fair Credit Reporting Act preempts such state laws, with the First Circuit in 2022 and Ninth Circuit in 2023 both upholding state medical debt restrictions against preemption challenges.
"We commend work by states, such as the proposed House Bill 1058, to proactively protect consumers against the harms of medical debt reporting," Frotman stated in the letter. The CFPB official noted that even major credit reporting companies have implicitly acknowledged the limited value of medical debt information by announcing in March 2023 that they would stop reporting some medical bills.
The agency's research supports the policy change, finding that among consumers with medical bill payment problems, 66 percent acquired their debt from unexpected emergencies or acute medical needs. Unlike traditional credit products, medical bills often involve "opaque pricing" that varies based on insurance status and provider billing practices, making them poor predictors of future credit performance.
For practitioners, the CFPB's endorsement signals continued federal support for state-level medical debt restrictions and suggests the agency will likely defend such laws against industry challenges. The letter also reinforces the narrow scope of FCRA preemption, providing additional legal cover for states considering similar consumer protection measures.