Vermont Enacts Law Prohibiting Medical Debt Reporting And Funding Debt Relief Initiative

On May 16, Vermont Governor Phil Scott signed into law S. 27, a medical debt relief measure that prohibits the inclusion of medical debt on consumer credit reports and establishes a state-funded initiative to abolish qualifying medical debt held by Vermont residents.

Under the new law, scheduled to take effect on July 1, 2025, the State Treasurer is authorized to contract with a nonprofit entity to purchases and eliminate medical debts owed by Vermont residents. The legislation appropriates $1 million in FY2026 to support this effort. In addition to abolishing the debts, the contracted nonprofit must coordinate with credit reporting agencies to remove adverse credit information associated with the debt and provide written notice to affected individuals.

To be eligible, debtors must either have household income at or below 400% of the federal poverty level or owe medical debt amounting to at least 5% of their household income. Additionally, the debt must remain outstanding after standard collection efforts have concluded.

The legislation also introduces permanent changes to Vermont's consumer credit reporting framework, including:

• Medical debt reporting banned. Credit reporting agencies are prohibited from reporting or maintaining any information related to medical debt.
• Nonprofit exemption for eligibility checks. Tax-exempt organizations may access consumer credit reports when determining eligibility for medical debt abolition.
• Healthcare facility restrictions. Large healthcare facilities are prohibited from selling medical debt, except to qualifying nonprofits whose purpose is to cancel the debt.
• Expanded notice and disclosure requirements. Updated credit disclosures will include a notice about Vermont's prohibition on medical debt reporting and permitted nonprofit access.

Putting It Into Practice: Vermont's new law barring the inclusion of medical debt on credit reports follows the CFPB's recent repeal of its own rule that would have imposed similar restrictions at the federal level (previously discussed here). While the CFPB continues to roll back rules and guidance issued under prior administrations (a trend we previously discussed here), states are increasingly stepping in to fill the void by expanding consumer protection measures (previously discussed here, here, and here). Credit reporting agencies and debt collectors should actively monitor state credit reporting laws to ensure continued compliance as regulatory frameworks evolve.