NEW YORK (RTW News) — The Trump administration is moving forward with plans to overrule any state laws designed to protect consumers' credit reports from being negatively impacted by medical debt and other financial obligations.

The Consumer Financial Protection Bureau (CFPB) has drafted an interpretative rule associated with the Fair Credit Reporting Act (FCRA), stating that federal law should take precedence over any state regulations concerning debt reporting practices to major credit bureaus such as Experian, Equifax, and TransUnion.

This policy shift effectively reverses prior Biden administration measures that allowed individual states to prohibit the reporting of medical debts. Currently, over a dozen states, including New York and Delaware, have enacted laws that ban the reporting of medical debt on consumers' credit reports.

Medical debt is frequently a contentious issue on credit reports, primarily due to delays in insurance claims which can prevent patients from promptly settling their bills. This leads to situations where individuals may find themselves unable to pay full amounts owed due to complications with insurance coverage.

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The three major credit bureaus jointly declared in 2023 that they would cease tracking medical debts under $500—an action they claimed would eliminate approximately 70% of all recorded medical debts. Nevertheless, specific states have pursued stronger measures, further expanding protections against medical debt reporting.

The CFPB officials justify their stance by asserting Congress' intent to create nationwide standards for the credit reporting system as outlined by the FCRA, arguing that state laws conflict with this framework.

Current estimates from the Kaiser Family Foundation suggest that around $220 billion is owed in medical debt across the United States. In states governed by Republican leadership, such as South Dakota, Mississippi, West Virginia, and Georgia, it is reported that roughly one in six residents carry outstanding medical debt.

Possessing delinquent medical debt can severely restrict an individual’s capacity to secure loans, credit cards, or mortgages, impacting their financial health significantly.

A spokesperson for the CFPB has not yet responded to requests for further insights on this regulatory change.