California Legislature Passes Bill Prohibiting Medical Debt from Appearing on Credit Reports 

California Gov. Gavin Newsom is now considering a bill that would block credit agencies from reporting on medical debt. The proposal passed the Legislature on Aug. 28.

According to the bill, such a measure is needed to protect Californians against what the senator described as burdensome consequences of medical bills that some cannot afford to pay.

“Removing medical debt from consumer credit reports will improve the lives of millions of Californians dealing with purported past-due medical expenses,” Limón wrote in a legislative analysis. “The bill will help to lift the credit scores of people who have been inaccurately and unfairly saddled with medical debts on their credit reports, opening opportunities for access to healthier financial products, better housing, and more employment opportunities.”

She said consumers often have no choice but to incur debt for medical services and cannot shop for cheaper options that could help save them money, and the debt is therefore less predictive of a willingness or ability to pay obligations.

“We also know that medical debt disproportionately affects low-income consumers, black and Latino communities, and young people, all of whom already face structural barriers to achieving financial well-being,” Limón said.

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Additionally, she said that medical debt reported to agencies contains more inaccuracies than other forms of debt due to mistakes made in billing, reimbursement, and insurance disputes.

The bill does forgive debts or limit collections agencies from pursuing those who owe for medical services received.

Proponents including Attorney General Rob Bonta, the advocacy group California Low-Income Consumer Coalition, and the California Nurses Association representing more than 100,000 members, among dozens of others, said the bill is needed to protect consumers.

“These blemishes on a credit report—which employers and landlords as well as creditors may see—and the resulting lower credit scores can compromise a family’s long- term financial stability by blocking access to mainstream credit, housing, and even employment,” the National Consumer Law Center—a Boston, Massachusetts, based nonprofit advocating for low-income and economically vulnerable individuals—said in legislative analyses.

The group said, in fear of accruing medical debt, some people might avoid seeking medical care, which could negatively affect their health.

Pointing to the price of medical services and insurance deductibles that are $4,000 or higher for many Californians, supporters of the bill said it is needed to relieve the burden of debt.

Consultants working for the state senate said in an analysis published Aug. 27 that more than 40 percent of American adults carry medical debt that exceeds their capacity to pay.

“Medical debt can be devastating to families in California and can come without warning,” the consultants wrote. “For years, medical debt constituted most of the debt in collections on consumer credit reports.”

When reported by credit agencies, medical debt prevents some from securing housing, employment, insurance, and other necessities, according to the analysis.

“While recent changes in reporting have helped those households with smaller medical debt loads, those most in need of relief are still forced to live in the shadow of sometimes crushing medical debt,” the consultants wrote.

Opponents, including the America’s Physician Groups representing 360 physician group and approximately 170,000 physicians, the California Association of Collectors advocating for the credit and collections industry, and the Consumer Data Industry Association representing the credit bureaus, say the bill will negatively impact the health care industry due to too much ambiguity in the text of the proposal.

“SB 1061, if implemented, would create major disruptions in the reporting, processing, and collection of various types of debts to the detriment of consumers, medical providers, and business community,” the Receivable Management Association, a California-based nonprofit group representing more than 600 companies, and the collectors’ association said in legislative analyses.

A clause in the bill that would void any debt that is reported to credit agencies on or after July 1, 2025, is also problematic, according to opponents.

“This is a major concern which is only magnified by the potential for this bill to reclassify other loan products as medical debt,” the groups wrote.

“The solution should not be a punitive penalty stemming from administrative errors or by the lack of knowledge that a loan product was reclassified as medical debt by consumer action, but rather simply having a requirement to remove the item from the credit report. The voiding of debt is a tremendous overreach and would amount to an improper taking.”

Newsom has until Sept. 30 to sign or veto the legislation.

Health Access California, a consumer advocacy coalition supporting SB 1061, urged Newsom to approve the measure.