WA Legislature passes bill eliminating medical debt from consumer credit reports

(The Center Square) – The Washington State Legislature passed a bill on Wednesday that could offer significant relief to people drowning in medical debt, but critics warn it may drive up costs for everyone.

Assuming Gov. Bob Ferguson signs Senate Bill 5480, the law will prohibit healthcare providers and collection agencies from reporting medical debt to credit firms. The vote opens the door for many individuals to secure housing, but not without raising concerns about unintended consequences.

Under SB 5480, reported medical debt is void and unenforceable, with the ability to challenge violations through the Consumer Protection Act. While rising credit scores could help people qualify for loans, critics say providers may tighten access if they can’t collect on unpaid bills.

“There’s all sorts of reasons that people build up debt, and sometimes it’s because they made bad choices,” Rep. Brandy Donaghy, D-Everett, said Wednesday. “Sometimes it’s because their lives change, but one thing that we don’t have control over are medical emergencies.”

The Administrative Office of the Courts anticipates indeterminate costs due to the bill. According to a fiscal note, the passage may result in a “significant” but “unpredictable” rise in CPA claims that the courts must litigate, requiring additional resources and funding to handle the load.

Republicans argue that the bill incentivizes people not to pay their medical bills. If someone sits on their debt, providers are more likely to write off that bill and look for other ways to cover operational costs. Consequently, this could lead to more debt deemed unenforceable.

Rep. Jim Walsh, R-Aberdeen, told The Center Square that SB 5480 doesn’t force providers to default, but that will be the effect if they can’t report debt to credit bureaus. Despite trying to protect consumers, he said it would limit available credit as some rely on it to make ends meet.

“They think it’s some great consumer protection, but all it means is creating more difficulty in getting medical care in the state of Washington,” Walsh told The Center Square, “because more providers will turn people away because they don’t want to run up a bunch of uncollectible bills.”

While it might take time for the unintended consequences to set in, those struggling with debt will see an immediate impact. Whether a minor copay or a $250,000 procedure, Washingtonians will see improved credit scores, making it easier to qualify for credit cards and rental housing.

The Biden administration proposed a rule at the federal level to exclude medical bills from credit reports last year. The Consumer Financial Protection Bureau, or CFPB, enacted the policy in January, taking effect for the first time last month as several other states race to adopt similar policies.

According to CFPB research, medical debt on a credit report is a “poor predictor” of whether an individual will repay a loan. The bureau expects the change to result in credit scores rising about 20 points for those with debt and about 22,000 additional mortgages annually.

“I agree with the intent of this bill and the previous remarks that these unforeseen events can cause medical debt and medical problems,” Rep. Mike Volz, R-Spokane, said Wednesday, “but it’s still a debt. It’s still an obligation of the individual.”

Six Republicans joined Senate Democrats in passing SB 5480 on Feb. 26, with every minority member in the House voting against it on Wednesday. The bill now awaits Ferguson’s signature before taking effect this summer.