Washington Enacts Law Barring Medical Debt from Credit Reporting

Washington State has enacted bipartisan legislation, Senate Bill 5480, prohibiting collection agencies from reporting medical debt to credit bureaus. Signed into law by Governor Bob Ferguson, the measure aims to protect consumers from negative credit impacts due to medical debt, which can affect their ability to secure basic necessities like housing, transportation, and employment. The bill is set to take effect on July 27.

This state-level action follows the halting of a similar federal rule by the Consumer Financial Protection Bureau under the current administration, a rule that was projected to improve credit scores for 15 million Americans by an average of 20 points. The state law targets the financial strain caused by escalating healthcare costs and recognizes medical debt as an unavoidable consequence for many consumers.

Research from the Leukemia & Lymphoma Society indicates that 60% of Washington adults cannot pay an unexpected $500 medical bill, and 30% of households carry medical debt despite having health insurance. These figures highlight the prevalence of medical debt in the state's population and the increased risk of credit damage linked to unpaid medical expenses.

The bill was advocated by state legislators including Senator Marcus Riccelli and Representative Joe Timmons, emphasizing that preventing credit harm due to medical debt is vital for financial stability after health crises. The legislation is expected to positively impact thousands of Washington residents by reducing credit report barriers that impede economic recovery post-medical emergencies.

This legislation aligns with ongoing efforts to address consumer protections in the health and insurance sectors, reflecting a growing recognition of the complex interplay between healthcare costs, debt collection practices, and credit rating systems. Insurers, payers, and providers may need to reassess compliance and consumer communication strategies in response to this new regulatory environment in Washington State.