California Blocks Medical Debt From Credit Reports

California Governor Gavin Newsom speaks in Los Angeles on Sep. 25, 2024. John Fredricks/The Epoch Times

California Gov. Gavin Newsom signed 19 bills into law on Sept. 24 related to consumer protection, credit reporting, subscription cancellation procedures, and hospital pricing, among other issues.

The governor said in a Sept. 24 statement that the new laws are focused on reducing financial strains felt by Californians and will set new standards for accountability and transparency for businesses across the state.

“Nobody wants to get ripped off, whether it’s a small subscription fee that’s seemingly impossible to cancel or massive medical debts which force families into financial ruin,” Newsom said. “We’re strengthening protections for Californians across the board and helping save consumers money.”

Senate Bill 1061, introduced by state Sen. Monique Limón, will block the inclusion of medical debt on credit reports and prohibit prospective creditors from making decisions based on existing medical debt listed on reports.

“No Californian should be unable to secure housing, a loan, or even a job because they accessed necessary medical care,” Limón said in a statement. “With this new law, California is stepping up to protect consumers impacted by the effects of medical debt.”

Rob Bonta, California’s attorney general, and dozens of organizations, including the California Nurses Association—which represents more than 100,000 members—and advocacy group California Low-Income Consumer Coalition, supported the bill.

Critics included America’s Physician Groups, representing 360 physician groups and about 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.

“SB 1061 ... 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 a statement quoted by a legislative analysis.

The law will take effect on July 1, 2025.

Another piece of legislation signed, Assembly Bill 2863—introduced by Assemblywoman Pilar Schiavo—will make it easier to cancel subscriptions and require businesses to offer a “click-to-cancel” button.

The bill was needed, according to the author, because auto-renewing subscription services are easier to sign up for than they are to cancel.

“At a time when too many in our community are struggling, unwanted subscription renewals can really add up,” Schiavo said in a statement. “California is setting a model for the nation on protecting consumers from unnecessary charges—giving them more control over their finances and helping to ensure fair business practices, providing a win for both consumers and small businesses.”

Proponents said the bill will help protect consumers by improving transparency.

“While automatic subscription renewals can offer some convenience, they far too often harm consumers and businesses,” the Consumer Federation of California wrote in a legislative analysis. “As it stands currently, many subscriptions are almost impossible to cancel without undertaking a Kafkaesque process that frustrates consumers to no end and does so to the direct financial benefit of corporations.”

A coalition of opponents representing technology and advertising associations said that what they perceive as ambiguity in the law is concerning and that businesses will need time to implement the changes.

The law will apply to subscription contracts that begin, are amended, or are extended beginning on July 1, 2025.

Two measures are focused on banking practices.

Assemblyman Tim Grayson’s Assembly Bill 2017 prohibits banks and credit unions from charging fees for transaction charges declined because of insufficient funds. Sen. Steven Bradford’s Senate Bill 1075 requires credit unions to notify members when overdraft charges are incurred and limits the fees at $14 beginning in 2026.

“These bills aim to protect lower-income Californians that are disproportionately impacted by financial fees that can push them deeper into financial hardship,” the governor’s office said in the statement.

With the signing of Assembly Bill 2202, introduced by Assemblyman Anthony Rendon, short-term rentals offered on websites, apps, or other platforms, will be required to clearly define the cleaning tasks required and any fees or charges if renters fail to perform them.

Assembly Bill 2297, authored by Assemblywoman Laura Friedman, excludes real property and investment assets from collections attempts for medical bills and for assessments made by hospitals or emergency physicians when determining eligibility for discount payment policies.

“Health care debt can have profound consequences that impact not just an individual’s financial security, but also their health,” the author said in a legislative analysis. “AB 2297 will shield a qualifying patient’s property from liens during the debt collection process, thereby helping to preserve their housing stability, and better clarify eligibility rules so that we can ensure more consistent compliance among hospitals.”

One organization critical of the bill said the new law could prove costly for health care providers.

“The bill still prohibits hospitals from considering some of the assets of Medicare patients—specifically, their 401K and IRA assets, no matter how large,” the California Hospital Association said in a legislative analysis. “[The association] recommends that this bill include language that allows hospitals to consider all assets for patients covered by federal health care programs, but only so long as federal law ... requires.”

Assembly Bill 2426, introduced by Assemblywoman Jacqui Irwin, prohibits businesses that offer digital licenses—for items such as audio and video files, among others—from using the terms “buy,” “purchase,” or similar alternatives unless purchasers click a statement acknowledging that they are receiving only a digital license that could be revoked.

The author said the law will help clear confusion that exists when some consumers believe they are purchasing access in perpetuity when terms could change that cause them to no longer have access to the item.

“This lack of understanding has frequently led to consumer confusion and frustration when their purchased digital good disappears from their online library, sometimes with little to no warning,” Irwin said in a legislative analysis.

Under Senate Bill 924, introduced by Sen. Steven Bradford, which was signed, rental tenants can choose to have their rent payment reported to credit bureaus. Landlords can charge up to $10 per month for the service.

Other new laws regulate commercial debts, real estate law, and franchise brokers.

In addition to the bills signed on Sept. 24, Newsom approved four other consumer-related measures earlier this year—including one that regulates warranty services for travel trailers and mobile homes, one regarding consumer refunds, one limiting security deposits on rental properties, and one pertaining to enforcement judgment exemptions.