The CFPB sent a letter to Oregon state lawmakers supporting Senate Bill 605, which would prohibit medical providers and debt collectors from reporting medical debt to credit agencies and bar consumer reporting agencies from including such information in credit reports. The agency's January 16 letter comes shortly after the CFPB finalized a federal regulation on January 7 that similarly bans medical bills from credit reports used by lenders.
"We commend work by states, such as the proposed SB 605, to proactively protect consumers against the harms of medical debt reporting," CFPB General Counsel Seth Frotman wrote in the letter to Senator Wlnsvey Campos and Representative Nathan Sosa. The agency argued that medical debt is "less predictive of future consumer credit performance than other tradelines" and that unpaid medical bills contain "unreliable information."
The Oregon bill would cement protections into state law that align with recent federal action. The CFPB's new federal regulation prohibits lenders from using medical information in lending decisions, citing the "limited predictive value" of such data and its use by debt collectors to "coerce people to pay bills they may not owe." However, the federal rule has already faced two legal challenges in Texas courts.
The CFPB's letter emphasized that federal law does not preempt state action on medical debt reporting, citing successful court defenses of similar state laws. In 2022, the First Circuit rejected a challenge to Maine's Medical Debt Reporting Act, while the Ninth Circuit in 2023 upheld Nevada's medical debt collection restrictions. Colorado and New York passed similar legislation in 2023, with several other states considering comparable measures.
The letter detailed systemic problems with medical debt reporting, including opaque pricing that varies based on insurance status and billing practices. The CFPB noted that the most common consumer complaints about medical debt collection allege the debt was already paid, doesn't belong to them, or is otherwise incorrect. Among consumers who report problems paying medical bills, 66 percent acquired their debt because of "a one-time or short-term expense arising from an acute medical need."
Major credit reporting companies have begun voluntarily removing some medical bills from reports, with VantageScore eliminating all medical collection data from one scoring model in August 2022. The credit score provider noted it expected the impact on its models' performance "to be minimal for a large segment of the population."
The CFPB emphasized that "the purpose of the credit reporting system is to assess credit risk, not to coerce people to pay debts they may not owe." The agency noted that many consumers don't discover erroneous medical bills in collections until they apply for mortgages or car loans, forcing them to choose between a protracted dispute process or paying questionable debts.