The Consumer Financial Protection Bureau is actively supporting state legislation aimed at prohibiting the reporting of medical debt to credit bureaus — a move that underscores the agency’s ongoing efforts to reshape how medical debt impacts consumers’ financial health. The CFPB sent letters to lawmakers in Massachusetts, South Dakota, Oregon, and Washington, commending their efforts to ban medical debt from consumer credit reports.
Why it matters: This either appears to be the first time that the CFPB has directly engaged with lawmakers at the state level — or is just one of the first times that it has publicized its support. This move follows the agency’s January 7 rule banning medical debt from lender-used credit reports and prohibiting lenders from considering medical debt in lending decisions and a subsequent lawsuit that was filed seeking to block the rule. It also follows a directive it released earlier this month, outlining how states can enforce consumer protection laws, likely in anticipation of a scaling back of its portfolio as a result of President Trump taking office.
Driving the news:
- In separate letters to lawmakers, CFPB General Counsel Seth Frotman praised proposed state laws that would prohibit medical creditors and debt collectors from furnishing medical debt information to credit bureaus.
- The letters highlight the CFPB’s stance that state-level laws reinforcing or exceeding federal protections are legally permissible under the Fair Credit Reporting Act.
- The CFPB argues that medical debt is unreliable as a predictor of creditworthiness and is often riddled with inaccuracies.
State-level momentum:
- Massachusetts: The CFPB supports HD. 3503 and SD. 1878, which would prevent medical debt from appearing on consumer credit reports.
- South Dakota: House Bill 1058 would ban medical debt reporting, aligning with recent legislation in other states.
- Oregon: SB 605 proposes prohibiting medical service providers and debt collectors from reporting medical debt to credit agencies.
- Washington: SB 5480 and HB 1632 would prevent medical debt information from being included in consumer credit reports.
Zoom out: The CFPB’s move comes amid growing scrutiny of medical debt collection practices. The agency cites research showing that medical debt is less predictive of credit risk than other types of debt and argues that credit reporting is often used as a coercion tactic rather than a legitimate assessment of creditworthiness.
Between the lines: While national credit bureaus have already announced steps to limit medical debt reporting, the CFPB’s support for state legislation could accelerate the trend and make it more difficult for debt collectors to use credit reporting as a leverage tool.
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