CFPB Says Federal Law Overrides State Bans on Medical Debt Reporting

Delaware initiated a new law this week that excludes medical debt from credit reports. But the Consumer Financial Protection Bureau called the law into question on Monday. It said federal law overrides state bans that disallow the reporting of medical debt.

The CFPB has drafted a new rule that would give the federal government sole power over how debts are reported to the major credit bureaus. The announcement came shortly after Delaware’s law took effect.

Governor Matt Meyer signed the bill into law in July. “When we remove barriers like medical debt, we strengthen Delaware’s families and economy,” Meyer said.

A Federal Override

The new CFPB rule states that the Fair Credit Reporting Act trumps state laws. This rule is interpretive — not legally binding. That leaves it to the courts to decide. The CFPB couched the rule as a return to a national standard and has asked the courts to vacate conflicting state laws.

The CFPB cited in its rule the 2024 Supreme Court case of Loper Bright Enterprises v. Raimondo. In this ruling, there were limitations to how much a judge has to follow a governmental organization when a statute is not clear.

The guidance “seems targeted at trying to override the new state laws banning reporting of medical debts on credit reports as well as nonconviction criminal records,” said Chi Chi Wu of the National Consumer Law Center.

In other words, the courts — not an agency — should decide how the FCRA applies to medical debt reporting. The new interpretation replaces the 2022 policy established by the Biden administration. That earlier rule gave states more freedom to limit the reporting of medical debt.

“When we remove barriers like medical debt, we strengthen Delaware’s families and economy,” Governor Matt Meyer said.

States like Delaware, Colorado, New York, and Maryland used it to pass new laws. The new guidance now tries to make those laws unenforceable.

A Cycle of Policy Changes

Rules on medical debt have flipped back and forth. In early 2025, the Biden-era CFPB created a rule to erase medical debt from credit reports. The CFPB said it would remove about $49 billion in debt for 15 million Americans.

A Texas court later threw out that rule. It agreed with lenders who said they need a full view of a borrower’s debt.

After that, states began to pass their own protections. Then the Trump-led CFPB pulled back those rules. Monday’s development puts a stop to the state-by-state patchwork.

The Delaware Example

Delaware’s law prevents medical debt from being reported on credit reports. It also established a partnership with Undue Medical Debt — a nonprofit that purchases and cancels unpaid bills.

The group plans to remove up to $50 million in medical debt. It will cover approximately 17,000 residents who meet the income or debt eligibility criteria.

Supporters said the law would help families maintain their credit scores in spite of medical costs they couldn’t control. They warned that rising insurance costs could exacerbate the situation. “We’re all just one accident or diagnosis away from financial trouble,” said Delaware State Senator Spiros Mantzavinos, who sponsored the bill.

Impact on Borrowers and Lenders

The three giant credit bureaus have already reduced their medical debt reporting. They no longer list paid medical debts under $500. That means the CFPB’s change mainly affects larger, unpaid bills.

The CFPB’s new rule leaves consumers uncertain about what will happen next. Credit scores could drop if courts allow medical debt to be reported again. Nonprime borrowers may face higher rates as well as more loan rejections. Lenders say they need this information to make fair lending decisions.

“We’re all just one accident or diagnosis away from financial trouble,” said Delaware Senator Spiros Mantzavinos

Larger medical debts may soon reappear on credit reports. That would make it harder for many Americans to borrow money or recover financially after an illness.

The Bottom Line

The CFPB’s rule resets the national standard. It limits what states can do to protect borrowers from harm caused by medical bills. Now it’s up to the courts to decide whether medical debt stays off credit reports or returns for good.