The Trump administration is moving to override state laws that protect consumers’ credit reports from medical debt.
Under the Biden administration, more than a dozen states, including California, New York, and Colorado, had passed laws to keep medical debt off credit reports, arguing that such debt can make it harder for people to buy a home, get a car, or find a job. The Trump administration contends that federal law should supersede these state-level protections.
The Consumer Financial Protection Bureau (CFPB) issued an interpretative rule stating that the federal Fair Credit Reporting Act (FCRA) takes precedence over any state regulations governing how debts are reported to credit bureaus such as Experian, Equifax, and TransUnion. This move reverses Biden-era policies that allowed states like New York and Delaware to prohibit the inclusion of medical debt on credit reports.
The CFPB maintains that Congress intended to establish a uniform national standard for credit reporting. The agency, now primarily focused on repealing previous regulations, says state laws restricting the reporting of debt conflict with federal intent.
Medical debt remains widespread because of disputes with insurance companies but largely because of peoples inability to pay. The Kaiser Family Foundation estimates Americans owe about $220 billion in medical debt, with roughly one in six residents in poorer Republican-led states carrying such debt.
The three major credit bureaus already agreed in 2023 to stop reporting medical debts under $500, which eliminated about 70% of such listings, but some states had gone further by banning medical debt reporting entirely. Critics warn that overturning these laws could hurt borrowers’ credit scores and limit access to mortgages, auto loans, and credit cards.
A credit report is like a financial report card showing your history of borrowing and repaying money. It includes your payment history on credit cards, loans, and mortgages; how much debt you currently have; how long you’ve had credit accounts; and whether you’ve had any bankruptcies or foreclosures. Lenders, landlords, and even employers use credit reports to decide whether to trust you with a loan, apartment, or job. Your credit report affects your credit score, a number that reflects how reliable you are with money.
If putting medical debt back on credit reports hurts a borrower’s chances of getting a loan, then that’s exactly what should happen. A credit score measures your ability to repay future loans. If you’re already burdened with medical debt, that affects your ability to repay other loans, and banks and lenders have every right to know that. A credit report exists for one reason: to show whether you can afford to take on more debt.
Some people argue that medical debt should not appear on credit reports because it reflects bad luck, not bad credit. But that argument is nonsense. We are all human, and there is a 100 percent certainty that each of us will experience a major illness or accident at some point in life, either personally or through our children, and will face large medical bills. This isn’t about bad luck; it’s simple statistical probability. Since these expenses directly affect a person’s ability to repay other debts, they absolutely belong on the credit report.
One argument that bears some weight is that medical debt often results from disputes with insurance companies or delayed payments that may eventually be resolved. While this is true in some cases, it is not true of all medical debt, and not all disputes are settled. In many situations, the debt, or a large portion of it, ultimately remains with the borrower, and that debt then impedes their ability to repay other loans.
Whether a person can handle more debt depends on their income, existing obligations, and payment history. It doesn’t matter whether the debt came from medical bills, credit cards, student loans, or a car accident, debt is debt. If you owe $20,000, that’s $20,000 less you have available to repay new loans. When a bank considers issuing a mortgage, it needs to know if the applicant already has major financial commitments draining their income.
At the end of the day, if researchers claim that medical debt does not impede people’s ability to repay other loans, then it can only mean that those borrowers are choosing not to pay their medical debt, which is yet another reason to give them a lower credit score.
The Biden-Harris administration pushed this policy at the same time as their student loan forgiveness plan, both of which were steps toward socialism. Forgiving student loans is essentially providing free education without calling it that, and removing medical debt from credit reports is a backdoor way of granting free healthcare.
If people can simply refuse to pay their medical bills without consequence, private healthcare would collapse. By erasing medical debt from credit scores, they would also increase defaults on other loans that borrowers would normally be unqualified to take. So this would have been the beginning of a slide into socialism.
The post Debt Is Debt: Why Trump Wants Medical Debt Back on Credit Reports appeared first on The Gateway Pundit.