Excerpted from a Ogletree, Deakins, Nash, Smoak & Stewart, P.C. Blog by Leah Shepherd
With health care costs rising, recent legal developments have altered how medical debt shows up on credit reports that employers conduct on job applicants and employees. Employers may want to stay abreast of the changing legal landscape and exercise caution in how they use information about medical debt in making employment decisions.
Quick Hits
- Fifteen states have laws prohibiting medical debt on credit reports.
- A new interpretive rule from the Consumer Financial Protection Bureau maintains that state law restrictions on the reporting of certain information, including medical debt, are preempted by the federal Fair Credit Reporting Act.
- Even with this new development, employers may want to exercise caution when considering whether to factor medical debt in making employment decisions.
- Applying background check policies uniformly can help to prevent discrimination claims.
Most businesses in the financial services industry are required by federal law to conduct credit checks before hiring an employee. Likewise, it’s common for insurance companies, law firms, real estate companies, law enforcement agencies, government contractors, and other employers to complete a credit check before hiring someone into certain sensitive positions. The purpose of these credit checks is two-fold: (1) to ensure that individuals in financially sensitive positions have good “financial hygiene” and (2) to mitigate legal risk and prevent embezzlement, theft, extortion, the sale of confidential and trade secret information, and other financial crimes.
In 2022, the three major credit bureaus in the United States voluntarily agreed to exclude medical debt from credit reports if the debt is less than $500, is less than one year delinquent, or is already paid.
If an employer obtains an applicant’s consent to run a credit check, it may see medical debt over $500 that has been sent to collections. The credit report may list the amount owed, the collection agency, and the creditor, such as a hospital. The report should not reveal information about the type of treatment or diagnoses.
Evolving Legal Landscape
Fifteen states have banned medical debt on credit reports. One main reason the states have given for enacting those laws is that patients in a medical emergency usually don’t have any choice about when, where, or how they take on a significant medical expense, unlike consumers who decide to buy items like expensive furniture or jewelry.
On March 17, 2024, a final rule from the Consumer Financial Protection Bureau (CFPB) took effect, prohibiting credit bureaus from including medical debt on credit reports and credit scores sent to lenders. However, on July 11, 2025, the U.S. District Court for the Eastern District of Texas vacated that rule. The court also concluded that state laws with similar provisions were preempted by the federal Fair Credit Reporting Act (FCRA). Similarly, on October 28, 2025, the CFPB issued an interpretive rule stating that the FCRA preempts state laws that seek to regulate the presence of medical debt on credit reports.
Next Steps
Employers that conduct credit checks may want to do so only with the consent of the subject of the credit check. Employers also may want to limit the use of credit information to situations where the checks (1) do not discriminate against applicants or employees, (2) help to accurately identify reliable and responsible employees, and (3) are job-related and consistent with business necessity. To avoid discrimination lawsuits, employers may wish to apply background check policies consistently with all applicants and employees.
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