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Medical debt collection laws are designed to protect patients from unfair practices by debt collectors and healthcare providers. With $220 billion in medical debt across the U.S. and nearly 1 in 5 households facing overdue bills, these laws are critical. They regulate how debts are collected, reported, and resolved, ensuring fairness and transparency.
Key takeaways:
These regulations help protect consumers while requiring debt collectors to adhere to strict compliance standards.
Medical Debt Collection Laws: Federal vs State Protections Overview
Several federal laws establish guidelines for how medical debts can be collected and reported. These laws create a baseline of rules that debt collectors, debt buyers, and healthcare providers must follow nationwide.
The FDCPA applies to third-party debt collectors, debt buyers, and creditors using a different name to collect medical debts. Medical debt is considered a "debt" under this law because it stems from personal, family, or household expenses.
Under the FDCPA, collectors must follow specific rules, such as limiting contact to between 8 a.m. and 9 p.m. and avoiding communication at workplaces where such calls are prohibited. If a consumer sends a written request to stop communication, the collector must comply - only reaching out to inform the consumer about legal actions or to confirm the end of collection efforts.
Collectors are also required to send a written notice within five days of initial contact, detailing the debt and the creditor. Consumers then have 30 days to dispute the debt, during which time collection efforts must pause.
The law strictly prohibits harassment and deception. Collectors cannot use threats, obscene language, or false claims about the debt's amount or status. They also cannot falsely present themselves as attorneys or suggest that nonpayment will lead to arrest. Additional fees or interest may only be added if explicitly allowed by the original agreement or by law.
The Consumer Financial Protection Bureau (CFPB) has emphasized the importance of compliance with these rules:
The Consumer Financial Protection Bureau (CFPB) is issuing this advisory opinion to remind debt collectors of their obligation to comply with the Fair Debt Collection Practices Act and Regulation F's prohibitions on false, deceptive, or misleading representations... in connection with the collection of any medical debt.
Violations of the FDCPA can result in liability for actual damages, court costs, attorney's fees, and statutory damages of up to $1,000.
Federal law also regulates how medical debts are reported on consumer credit reports.
The FCRA ensures that entities reporting medical debt to credit bureaus provide accurate information and maintain effective dispute resolution processes. Current industry standards set by Equifax, Experian, and TransUnion include a 365-day waiting period before unpaid medical debt can appear on a credit report. This gives consumers time to resolve insurance issues or arrange payment. Additionally, paid medical collections are removed immediately, and debts under $500 are not reported at all.
These changes have had a major impact. Previously, around 43 million Americans had unpaid medical bills on their credit reports, totaling $88 billion and making up 58% of all debts in collection.
A recent federal ruling affected earlier efforts to ban medical debt from credit reports entirely. Collectors and furnishers are now held accountable for reporting or collecting invalid medical debts, such as those resulting from upcoded services, amounts already paid by insurance, or charges exceeding limits set by the No Surprises Act. To avoid liability, collectors must confirm insurance payments and ensure compliance with hospital financial assistance policies before pursuing collection. With 11 states enforcing their own laws to limit or ban medical debt reporting, staying updated on state-specific requirements is vital.
Beyond credit reporting, federal law also addresses unexpected medical costs through the No Surprises Act.
Since January 1, 2022, the No Surprises Act has prohibited surprise medical bills for emergency services, even when provided out-of-network without prior approval. It also bans out-of-network balance billing for supplemental care, like anesthesiology or radiology, at in-network facilities.
Debt collectors are prohibited from pursuing charges that exceed the limits set by this law. As the CFPB explains:
By law, debt collectors cannot make misrepresentations about the debts they are trying to collect. This includes telling a person they must pay a debt that came from a medical bill that exceeded the No Surprises Act limits.
Any charges above the permitted amounts are invalid and cannot be reported to credit bureaus. Collectors must ensure the debt complies with federal limits before attempting to collect. The Act also provides an Independent Dispute Resolution process, allowing providers and insurers to settle reimbursement disputes without involving patients.
HHS Secretary Xavier Becerra underscored the law's impact:
The No Surprises Act is the most critical consumer protection law since the Affordable Care Act. We are taking patients out of the middle of the food fight between insurers and providers and ensuring they aren't met with eye-popping, bankruptcy-inducing medical bills.
HIPAA governs how medical information is accessed and shared during debt collection. The "minimum necessary" rule limits access to only the information required to collect a debt.
This creates challenges for managing medical debt portfolios. Debt buyers must handle protected health information (PHI) according to HIPAA standards, and violations can lead to severe penalties - ranging from $100 to $50,000 per violation, with annual maximum fines of up to $1.5 million.
When acquiring medical debt, buyers should confirm that sellers have valid business associate agreements in place. Data transfers must be secure and HIPAA-compliant, and documentation should be limited to what's necessary to validate the debt, avoiding unnecessary medical records.
Federal laws lay the groundwork for consumer protections, but state-level rules take it a step further. As of 2025, many states have introduced stronger safeguards, often surpassing federal standards. These rules not only enhance protections but also reshape how medical debt is managed and collected.
Several states have tightened restrictions on reporting medical debt to credit bureaus. Fourteen states, including New York and California, now completely ban medical debt from appearing on credit reports, regardless of the amount owed. In five other states, reporting is allowed only under certain conditions. For example, Florida requires proof that a patient is not eligible for financial assistance before any debt can be reported. Nevada, on the other hand, mandates compliance with price transparency laws before reporting.
These changes mean debt buyers must rethink their strategies. Credit reporting, once a common tool to encourage payment, is being replaced by more direct approaches like personalized payment plans or, in some cases, legal action. As Maanasa Kona, Associate Research Professor at Georgetown University, explains:
Patient protections at the state level help address key gaps in federal protections.
Nineteen states now offer stronger wage garnishment protections than federal laws. Some states go as far as banning wage garnishment for medical debt altogether. For example, New York and Delaware prohibit wage garnishment entirely, while New Jersey bars it for individuals earning less than 600% of the federal poverty level [12,13].
Several states also protect patients' homes from being targeted. Nevada, New York, North Carolina, Maryland, and Virginia all prohibit placing liens on or foreclosing a patient’s home to recover medical debt.
These measures delay or limit legal actions, giving patients more breathing room while challenging traditional collection methods.
Some states have also shortened the timeframe for pursuing medical debt. Florida and Virginia now limit debt collection to just three years, reducing the window for legal recourse. Additionally, twenty-one states require hospitals to provide financial assistance to low-income patients, often raising income eligibility thresholds above federal standards.
In July 2024, New York introduced new rules requiring hospitals to offer free care to patients earning less than 200% of the federal poverty level. The state also prohibits discrimination based on immigration status. Meanwhile, thirteen states have either capped or banned interest charges on medical debt. For instance, Arizona sets a 3% interest cap, while Delaware and Maine eliminate interest charges entirely [12,13]. Colorado has even mandated that monthly payment plan installments cannot exceed 4% of a patient’s gross monthly income.
These state-level rules significantly impact the value of medical debt portfolios. When legal options are limited and interest cannot accumulate, portfolios often sell for much less. For debt buyers, understanding these rules is essential to ensure compliance and adapt to the changing landscape.
Acquiring medical debt involves navigating a maze of legal and documentation requirements. Federal and state regulations demand strict compliance, and any misstep can lead to financial penalties or legal action.
Before purchasing a medical debt portfolio, buyers must confirm that every account has a "reasonable basis" for its validity. This isn't just a best practice - it's a legal requirement. The Consumer Financial Protection Bureau (CFPB) emphasizes:
Debt collectors are strictly liable under the FDCPA and Regulation F... for collecting an amount not owed because it was already paid.
To meet this standard, buyers should secure complete payment histories, including insurance payments and post-billing adjustments. One key area to watch for is upcoding, where healthcare providers bill for more expensive services than were actually provided. This practice is believed to account for 5% to 10% of healthcare spending in the U.S.. Auditing medical codes in a portfolio can help uncover these inflated charges.
Another critical step is verifying whether the original provider assessed patients for financial assistance programs. Non-profit hospitals, for instance, are required to evaluate patients for "charity care." Failing to do so could jeopardize the hospital's tax-exempt status and potentially invalidate the debt. Additionally, compliance with the No Surprises Act is essential. Collectors cannot pursue amounts that exceed the capped charges for out-of-network or emergency services. In states with workers' compensation laws, confirm that medical providers aren't unlawfully seeking payment from patients for work-related injuries when employers or insurers should be responsible.
It's also vital to maintain detailed records of all patient interactions. Ensure no communications occurred outside permitted times or locations. With these verified records, buyers can then tackle the complexities of state-specific laws and pricing disputes.
Medical debt portfolios often span multiple states, each with its own set of rules. Buyers must ensure compliance with varying pricing and reporting standards. For example, as of June 2025, 11 states have laws restricting or outright banning medical debt from being reported to credit bureaus. Some states prohibit reporting entirely, while others impose conditions that need careful tracking.
State laws also differ on what constitutes a collectible amount. In some states without explicit contracts, common law may restrict collections to "reasonable" or "market rates". The CFPB highlights this issue:
State law may determine or limit the amount that medical providers may charge to consumers, and that collection of or an attempt to collect an amount that exceeds the allowable amount under State law... may misrepresent the amount of the debt.
Buyers need to ensure each account complies with state-specific pricing limits. Some states also have "surprise billing" laws that go beyond federal protections, requiring further adjustments to collection amounts. Staying synced with healthcare providers in real time can help track insurance adjustments or partial payments made even after a portfolio has been sold.
In addition to verifying account validity and state compliance, buyers must adhere to HIPAA privacy regulations and FDCPA requirements when managing portfolios. Under HIPAA, protected health information can only be shared for treatment, payment, or healthcare operations. When portfolios change hands, all data transfers must comply with these guidelines.
The FDCPA adds another layer of complexity. Using the CFPB's Model Validation Notice ensures all federally mandated disclosures are included. Collectors are also restricted in whom they can contact - typically only the consumer's attorney or credit reporting agencies - unless the consumer explicitly consents to additional communication.
With total medical debt in the U.S. estimated at $220 billion and nearly 1 in 5 households carrying overdue medical bills, the stakes are enormous. In 2022, the CFPB received about 8,500 complaints related to medical debt collection. Violations of the FDCPA can lead to statutory damages of up to $1,000 per individual case, while class actions can result in damages up to $500,000 or 1% of the collector's net worth. For debt buyers, compliance isn't just a legal requirement - it's a critical safeguard for both consumers and their business.
This section focuses on the legal tools available for medical debt collection, alongside the restrictions that govern their use.
Debt collectors have several methods at their disposal, but both federal and state laws place firm boundaries on how these can be applied. Aggressive tactics - like assigning debts to attorneys for litigation, garnishing wages, or filing liens - are only allowed under specific conditions and must strictly follow legal protocols. The Fair Debt Collection Practices Act (FDCPA) and Regulation F impose penalties even for unintentional violations. For instance, collectors are prohibited from misrepresenting the consequences of nonpayment or threatening actions they do not intend to carry out.
Extraordinary Collection Actions (ECAs) include forceful methods such as liens, wage garnishment, and obtaining legal judgments. These actions are heavily regulated to ensure fairness. Before initiating ECAs, healthcare providers are typically required to evaluate the patient’s eligibility for financial assistance and explore reasonable payment arrangements.
State laws add another layer of oversight. For example, debt collectors must file lawsuits in the judicial district where the consumer either signed the contract or currently resides. Failing to meet this requirement can lead to case dismissals and potential FDCPA violations. On top of that, wage garnishment and other legal remedies face their own strict limitations.
Wage garnishment, often a controversial remedy, is subject to stringent controls in many states. Courts must approve garnishment requests, and state laws impose caps on the amount that can be deducted from a person’s wages.
Regulation F also limits communication practices. Debt collectors are presumed to violate the FDCPA if they contact a consumer more than seven times within seven consecutive days about the same debt. Additionally, collectors must stop all communication if the consumer is represented by an attorney or submits a written request to cease contact. Any electronic communication, such as texts or emails, must include a simple and free opt-out option.
Legal restrictions also influence how debt buyers assess the value of medical debt portfolios and establish collection timelines. In cases where no formal contract exists - like emergency care - state common law often limits the collectible amount to a "reasonable" or "market rate" rather than the provider’s list price. This is emphasized by the Consumer Financial Protection Bureau (CFPB):
The collection amount that is "permitted by law" may be much less than the amount asserted to be owed by the medical provider.
Debt buyers must carefully assess whether debts in their portfolios are legally collectible. For instance, accounts governed by the No Surprises Act cannot include charges that exceed capped amounts for out-of-network emergency services. Additionally, the definition of "in default" for medical debt depends on the terms agreed upon by the consumer and provider, as determined by state law. These legal nuances significantly affect how portfolios are priced and how long it takes to recover funds. Accounts requiring legal review or subject to strict state regulations often result in lower returns and extended collection timelines.
Navigating medical debt collection requires careful attention to a complex web of federal and state regulations. With around $88 billion currently in collections, the Fair Debt Collection Practices Act (FDCPA) holds collectors to strict liability standards. Even unintentional errors can lead to penalties, making thorough due diligence a non-negotiable priority.
The regulatory environment is shifting quickly. After the Consumer Financial Protection Bureau's (CFPB) 2024 rule to remove medical bills from credit reports was overturned in July 2025, states began stepping in to address the gap. By June 2025, 14 states had enacted bans on reporting medical debt to credit bureaus, while 21 states required hospitals to offer financial assistance that exceeds federal minimum standards. For portfolio managers, this means staying on top of evolving state laws by maintaining detailed compliance matrices to avoid potential violations. These changes directly shape collection strategies and practices.
Before pursuing collections, it's critical to verify that debts are accurate and compliant. This includes ensuring charges don’t involve upcoded services or exceed limits set by the No Surprises Act. The CFPB stresses that collectors must have a "reasonable basis" to assert the validity and accuracy of debts. This means obtaining key documents, such as payment records, insurance details, and proof of compliance with financial assistance policies.
Managing portfolios across multiple states adds another layer of complexity. Collectors must adhere to varying rules on interest rate caps, payment plans, and legal remedies. For instance, Arizona caps interest rates on medical debt at 3%. Additionally, in cases without formal contracts - common in emergency care - state common law may limit recoverable amounts to "reasonable" or "market rates" rather than a provider’s listed prices.
If you want to confirm whether a medical debt is legitimate, you have the right to request validation from the debt collector. The Fair Debt Collection Practices Act (FDCPA) allows you to ask for specific proof, such as the name of the original creditor, a breakdown of the charges, and the total amount owed. Make sure to send your request in writing within 30 days of receiving the initial notice. Once they receive your request, the collector is required to provide verification to confirm the debt's accuracy and validity.
Yes, medical debt can still impact your credit, although recent federal and state regulations are working to reduce its effects. For instance, California has introduced disclosure requirements, and the CFPB has updated rules on how medical debt is reported. These protections include limits on reporting specific debts, like those under $500 or already paid, making it easier for consumers to manage their credit health.
If a collector wants to sue or garnish wages for medical debt, certain conditions must be met. First, the debt must be legally owed and still unpaid. Additionally, any collection efforts must align with federal laws, such as the Fair Debt Collection Practices Act (FDCPA). It's also crucial that the debt hasn't been invalidated by law, insurance coverage, or other protections. Ensuring compliance with these regulations helps avoid illegal collection practices.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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