New CA laws ban medical debt on credit reports and bank NSF fees

CALIFORNIA – Governor Gavin Newsom announced September 24, that he signed a package of 18 consumer protection bills into law that includes a banning medical debt on credit reports and non sufficient funds (NSF) fees at certain banks.

“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,” said Newsom.

Medical debt will no longer be included on credit reports

The Urban Institute reported 7.8% of California consumers with a credit report had a medical debt listed on it, increasing to 8.5% for Black Californians.

“People with medical debt are more likely to say debt has caused them to be turned down for a rental or a mortgage than people with student loans or credit card debt, increasing their risk of homelessness or being forced to live in substandard housing,” said Attorney General Rob Bonta’s office in a statement.

Under the new law – Senate Bill 1061, medical debt will no longer be included on consumers’ credit reports.

The bill also prohibits using any medical debt listed on a credit report as a negative factor when making credit decisions.

California is the eighth state to enact state-level legislation against medical debt credit reporting.

Ban on NSF fees

A 2023 Department of Financial Protection and Innovation (DFPI) report found that a healthy minority of banks and credit unions earn a significant portion of their income from NSF and overdraft fees — upwards of 10 percent, and even 20 percent, of the institutions’ net income.

According to the report, NSF fees comprised a higher percentage of income than overdraft fees.

New law – Assembly Bill 2017 now bans state-chartered banks and credit unions from charging a NSF fee for a transaction that the institution declines instantaneously or near instantaneously because the consumer has insufficient funds in their account.

The Consumer Financial Protection Bureau supports the ban.

They explained that “covered financial institutions would have no reason for imposing such fees other than reaping a windfall, because they could simply refuse to authorize the transaction instantaneously” at a negligible cost.

To view all the consumer protection bills signed into law visit https://www.gov.ca.gov/2024/09/24/governor-newsom-signs-consumer-protection-bills-targeting-medical-debt-overdraft-fees-and-unfair-subscription-practices/