New state law prevents medical debt from being used by credit reporting agencies effective Jan. 1

SACRAMENTO, Calif. – Governor Newsom has signed Senate Bill 1061, a bill that prohibits the use of medical debt when calculating credit scores, into law before the deadline for pending legislation at the end of September.

The new law is set to take effect on January 1 of 2025 and joins federal efforts to limit the use of medical debt in credit reporting.

"With ballooning out-of-pocket health care costs, we need a fair credit system that does not punish California’s patients for seeking health care when they need it. As a nurse, I’ve seen patients who delay care because they are afraid of going into debt," explained Michelle Gutierrez Vo, RN and President of California Nurses Association.

The bill, sponsored by California's Attorney General and the California Nurses Association and authored by State Senator Monique Limón, prevents healthcare providers from giving a patient's medical debt information to a credit reporting agency.

"When someone is scared and in pain, the last thing they should think about is whether seeking care will take away their ability to buy a house or land a job. Unfortunately, medical debt appearing on credit reports makes this a common experience for far too many people," argued Attorney General Rob Bonta on the signing the bill into law. "California today chose to put a stop to this unnecessary and outdated practice. SB 1061 supports Californians’ fair access to essential economic opportunities and a brighter future."

Additionally, SB 1061 requires hospitals and debt collectors to maintain records relating to the collection of medical debt and designates that all of the following requirements must be met before medical debt is sold to a medical debt buyer as defined in Civil Code section 1788.50:

• A hospital finds the patient is ineligible for financial assistance or the patient has not responded to attempts to bill or offer financial assistance for 180 days
• The hospital includes contractual language in the sales agreement that the debt buyer agrees to return and the hospital agrees to accept, any account where the balance is deemed incorrect due to the availability of a third-party payer or the patient is eligible for charity care or financial assistance
• The debt buyer agrees to not resell or transfer the patient debt except to the originating hospital or a tax-exempt organization detailed in Civil Code section 127444 or if the debt buyer is sold or merged with another entity
• The debt buyer agrees to not charge interest or fees on the patient debt
• The debt buyer is licensed as a debt collector by the California Department of Financial Protection and Innovation

"I am proud to author legislation to provide relief to Californians suffering from the burden of medical debt," said Senator Monique Limón. "No Californian should be unable to secure housing, a loan, or even a job because they accessed necessary medical care. California is stepping up to protect consumers impacted by the effects of medical debt."

Owners of patient debt are also prohibited from reporting adverse information to a consumer credit reporting agency and from filing a civil action against a patient for non-payment before 180 days after initial billing detailed SB 1061.