Medical Debt in Credit Reports: What Employers Need to Know Amid Legal Shifts

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.

Although the CFPB’s new interpretative rule will result in an increase of medical debt information in credit checks, employers may want to avoid using this information when making employment decisions, given that it generally does not provide much insight into an applicant’s or employee’s financial hygiene or the risk of future wrongdoing. 

The use of medical debt information may have additional implications. Women have higher rates of carrying medical debt, compared to men, according to the CFPB. Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on sex. The Americans with Disabilities Act (ADA), Pregnant Workers Fairness Act (PWFA), and Genetic Information Nondiscrimination Act (GINA) bar employers from discriminating against job applicants and employees based on their disability, pregnancy, or genetic makeup. Asking about medical diagnoses or disabilities in job interviews is generally unlawful, unless it is related to the ability to perform essential job functions.

Employers may wish to train hiring managers to comply with state and federal laws regarding the use of credit information in employment decisions.

Ogletree Deakins’ Background Checks Practice Group will continue to monitor developments and will provide updates on the Background Checks and Employment Law blogs as new information becomes available.

Further information is available on the Ogletree Deakins Client Portal in the Use & Evaluation – Credit law summaries (see the CRA Look-back Restrictions accordions for prohibitions on medical debt reporting). For more information on the Client Portal or a Client Portal subscription, reach out to clientportal@ogletree.com.

Gustavo A. Suarez is senior counsel in Ogletree Deakins’ Greenville office.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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