The State of Play on Medical Debt Credit Reporting

On December 13, 2023 Governor Kathy Hochul of New York signed into law a new bill requiring that unpaid medical debt will no longer appear in New York residents’ credit reports

Under the new law, “medical debt” means an obligation or alleged obligation of a consumer to pay any amount related to the receipt of health care services, products, or devices from an Article 28 hospital, a health care professional, or a certified ambulance service. Health care professionals covered by the law include all the licensed professions under Title VIII of the Education Law, which includes physicians, physician assistants, and nurse practitioners as well as all the other health professionals who hold a license.

Hospitals, health care professionals, and ambulance companies are barred from reporting unpaid medical debts to consumer reporting agencies and also must include a provision in their contracts with collection entities prohibiting the agency from reporting any information about the debts to a credit reporting agency. Consumer reporting agencies are prohibited from including information on medical debt in their reports or files on a consumer regardless of the date the debt was incurred. Any debt that is reported to a credit bureau will become void.

New York is the second state after Colorado to remove medical debt from credit reports and ban the reporting of medical debt in an effort to make health care more accessible and affordable. 

Starting Jan. 1, 2025 a new California law prohibited health providers and debt collectors from reporting medical debt information to credit agencies. That means unpaid medical bills should no longer show up on people’s credit reports, which consumer advocacy groups say is a boon for patients with debt.

The main three credit bureaus – TransUnion, Equifax and Experian — stopped reporting medical debt under $500 in 2023. But most people with medical debt owe far more than that. The national average for medical balance is $3,100, according to the Consumer Financial Protection Bureau. In California, an estimated 38% of residents carry some type of medical debt; that figure climbs to more than half for low-income residents, according to the California Health Care Foundation. 

One key caveat is that patients can only take advantage of this law if the debt is owed directly to a medical provider or collection agency, but not when the debt is charged on a medical credit card or a general credit card. In New York, medical debt does not include debt charged to a credit card, unless the credit card is issued under an open-ended or closed-ended plan offered specifically for the payment of health care services, products, or devices provided to a person.

At the Federal level, On January 7, 2025, the Consumer Financial Protection Bureau (CFPB) finalized a rule that will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans. The CFPB’s action will ban the inclusion of medical bills on credit reports used by lenders and prohibit lenders from using medical information in their lending decisions. The rule will increase privacy protections and prevent debt collectors from using the credit reporting system to coerce people to pay bills they don’t owe. The CFPB has found that medical debts provide little predictive value to lenders about borrowers’ ability to repay other debts, and consumers frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.

The CFPB expects the rule will lead to the approval of approximately 22,000 additional, affordable mortgages every year and that Americans with medical debt on their credit reports could see their credit scores rise by an average of 20 points.

The CFPB’s final rule brings regulations in line with Congress’s decision to safeguard consumers’ privacy by restricting lenders from obtaining or using medical information, including information about medical debts. Federal financial regulators later created an exception to this restriction, allowing creditors to consider medical debts. This carveout has enabled debt collectors to use the credit reporting system to coerce payments from patients for inaccurate or false medical bills.

The CFPB’s new rule amends Regulation V, which implements the Fair Credit Reporting Act (FCRA), to end this exception and establish guardrails for credit reporting companies, prohibiting them from including medical bills on credit reports sent to lenders, who are banned from considering them. The final rule:

• Prohibits lenders from considering medical information: The rule ends the special regulatory carveout that previously allowed creditors to use certain medical information in making lending decisions. This means lenders will also be barred from using information about medical devices, such as prosthetic limbs, that could be used to require that the devices serve as collateral for a loan for the purposes of repossession.
• Bans medical bills on credit reports: The rule bans consumer reporting agencies from including medical debt information on credit reports and credit scores sent to lenders. This will help end the practice of using the credit reporting system to coerce payment of bills regardless of their accuracy. Lenders will continue to be able to consider medical information to verify medical-based forbearances, verify medical expenses that a consumer needs a loan to pay, consider certain benefits as income when underwriting, and other legitimate uses.

It is not clear if the new rule is in effect under the Trump administration.