Colorado ban on medical debt on credit reports challenged after new Trump administration rule
A Colorado law that prevents medical debt from appearing on consumer credit reports is facing a new legal challenge following guidance from the Trump administration that says federal credit policy overrides such state laws.
In 2023 Colorado enacted a law that requires credit reporting agencies to remove medical debt from consumer reports, limiting who can see it.
The Consumer Financial Protection Bureau at the end of October reversed a Biden-era interpretation of the 1970 Fair Credit Reporting Act that allowed states to ban medical debt from appearing on credit reports. The new rule says the FCRA overrides state laws around reporting debt to credit bureaus, “consistent with Congress’s intent to create national standards for the credit reporting system.”
At the time Colorado’s law passed, about 11 percent of Coloradans had medical debt in collections. Colorado was the first state to approve a policy limiting how medical debt affects credit, and more than a dozen states now have similar laws.
ACA International, an association of credit and collection professionals, filed a federal lawsuit against Colorado on Nov. 5 challenging the state’s law after the Trump administration announced the new rule. The association says the law has compromised accurate credit reporting and harms medical providers and patients in the state.
“Creditors and lenders who lack a complete picture of a consumer’s credit history may extend a loan the consumer cannot afford, which only hurts their financial situation and increases the cost of credit for everyone,” Jennifer Whipple, ACA’s board president, said in a statement.
Bethany Pray, chief legal and policy officer at the Colorado Center on Law and Policy, said the Trump administration rule is a change in guidance and doesn’t immediately lead to changes, but it opens the door to legal action such as the ACA lawsuit. The guidance itself acknowledges that the courts are the “ultimate arbiters of statutory meaning,” Pray said.
Previous court rulings in Maine and New Jersey found that states are not preempted from implementing bans on medical debt appearing on credit reports, so Pray said those cases offer viable arguments that could support Colorado’s law in court.
Isabel Cruz, policy director at the Colorado Consumer Health Initiative, said Coloradans should know that the law’s protections are not immediately threatened, and those affected would be alerted before any changes.
“We were really excited that Colorado was at the forefront of this important policy, and we’ve heard from consumers, from legal advocates and from other folks on the ground that having the ability to pursue housing, to pursue different careers, has really opened up without having a medical debt on credit reports for the last few years,” Cruz said.
The bill has a July 2028 sunset included because of how new the policy was, Cruz said, but she hasn’t heard any desire at the Colorado Legislature to end the law sooner than that because the protections have been “quite popular.”
We know that a big reason people don’t access care is for fear of what it will cost.
Colorado has seen what medical debt appearing on credit reports does to consumers since the law only recently passed. Cruz says it stops people from being able to build wealth and feel financially stable enough to pay back their debts. Medical debt appearing on consumer credit reports again, she said, “will take us backwards and unravel the progress that has been made for Coloradans.”
“We know that a big reason people don’t access care is for fear of what it will cost,” Cruz said.
Medical debt is not planned or voluntarily incurred, Pray said, so the debt affecting someone’s ability to rent a home, get a loan, or sometimes get a job harms “all aspects of Coloradans lives.” Medicaid work requirements and the end of Affordable Care Act tax credits means more people will potentially incur medical debt, too, she said.
“This is a really tough time for this issue to come up when we know that there are tens of thousands of people who are likely to lose health care coverage in the next months,” Pray said.
Cruz and Pray both said their organizations will closely watch the lawsuit as it goes through the court system.
