California Governor Gavin Newsom signed into law Senate Bill 1061 (SB 1061) on September 24, 2024. This aims to protect consumers from the adverse effects of medical debt. SB 1061’s author is Senator Monique Limón with the support of Attorney General Rob Bonta. 

This legislation prohibits health care providers and debt collectors from reporting medical debt to credit reporting agencies. Therefore, it ensures that such debts no longer impact Californians’ credit scores.

The Burden of Medical Debt

This has long been a significant issue in the United States, affecting millions of individuals and families. In California, approximately 38% of residents carry some form of medical debt, with this figure rising to over 50% among low-income populations.

Unlike other types of debt, medical debt often arises from unforeseen health emergencies, making it an unreliable indicator of a person’s creditworthiness. Consequently, its presence on credit reports can unjustly hinder individuals’ access to housing, employment, and loans.

Provisions of SB 1061

Effective January 1, 2025, SB 1061 introduces several key measures:

• Prohibition on Reporting Medical Debt: Health care providers and debt collectors are barred from furnishing information regarding medical debt to consumer credit reporting agencies. This ensures that unpaid medical bills do not appear on credit reports. Hence, safeguarding consumers from potential negative impacts on their credit scores.
• Exclusion from Credit Decisions: The law also prohibits the use of any medical debt listed on a credit report when making credit decisions. This means lenders cannot consider medical debt information, even if it appears on a credit report thereby preventing discrimination based on this.

National Context and Federal Actions

California’s legislation aligns with a broader national effort to address the challenges posed by medical debt:

CFPB’s Final Rule

In January 2025, the Consumer Financial Protection Bureau (CFPB) finalized a rule removing an estimated $49 billion in medical bills from credit reports nationwide. This action bans the inclusion of medical bills on credit reports used by lenders. Additionally, it prohibits lenders from using medical information in their lending decisions.

Credit Bureaus’ Voluntary Measures

Prior to these regulatory changes, major credit bureaus such as Equifax, Experian, and TransUnion had already ceased reporting medical debt under $500. However, with the national average balance at $3,100, many consumers continued to be affected. Hence this highlights the need for more comprehensive measures like SB 1061.

Implications for Californians

The enactment of SB 1061 brings several benefits to Californians:

• Enhanced Financial Stability: By preventing medical debt from affecting credit scores, individuals are less likely to face higher interest rates or be denied loans, rentals, or employment based on medical debt.
• Focus on Recovery: Patients can concentrate on their health and recovery without the added stress of potential financial repercussions impacting their creditworthiness.
• Promotion of Fairness: The law acknowledges that medical debt often results from unforeseen circumstances. Therefore, it should not be used as a metric to judge an individual’s financial responsibility.

Considerations and Limitations

While SB 1061 marks a significant step forward, certain limitations remain:

• Exclusion of Credit Card Debt: The law does not apply to medical debt incurred through medical credit cards or general credit cards. This means that if patients use credit cards to pay for medical expenses, that debt can still appear on credit reports.
• Continued Debt Obligations: It’s important to note that while medical debt may not impact credit reports, individuals are still obligated to repay their medical bills. Debt collectors can pursue other avenues, such as lawsuits, to recover unpaid debts.

What You Should Know

California’s proactive approach sets a precedent for other states to follow. By removing medical debt from credit reports, the state acknowledges the unique nature of such debt and its disproportionate impact on consumers. As the nation continues to grapple with healthcare affordability, policies like SB 1061 serve as crucial interventions to protect consumers from the cascading effects.

The signing of SB 1061 into law represents a pivotal moment in consumer protection within the healthcare sector. This shows that California is taking a stand for its residents, allowing them to seek necessary medical care without the looming threat of financial ruin affecting their creditworthiness.

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