California’s SB 1061, signed into law by Governor Gavin Newsom, marks a significant shift for employers using credit checks in background screening. Effective July 1, 2025, medical debt will no longer appear on credit reports requested for employment purposes. This change comes as part of the state’s broader effort to protect consumers from the negative effects of medical debt and its potential impact on employment.
What SB 1061 Means for California Employers
For employers in California, SB 1061 means that medical debt information will be absent from credit checks conducted during the hiring process. The law also makes improperly reported medical debt void and unenforceable. Employers will no longer be able to consider this type of debt to assess a job candidate’s financial history or responsibility.
Medical debt, often the result of unforeseen health issues, may not reliably indicate creditworthiness. SB 1061 reflects this recognition by removing such debt from employment-related credit reports. Attorney General Rob Bonta, who co-sponsored the bill, emphasized the significance of the new law, stating, “Medical debt doesn’t reflect a person’s financial responsibility or creditworthiness—it reflects the high costs of care in moments of need. By removing it from credit reports, we’re giving Californians a fairer chance at building their financial futures.”
This change is particularly important for industries that require background checks involving credit reports, such as finance, security, and managerial roles. Without access to medical debt information, employers will need to focus on other aspects of a candidate’s financial history when making employment decisions.
Credit Checks for Employment in California: The Legal Framework
It’s important for employers to remember that California law already places strict limits on when credit reports can be used in employment decisions. Under existing law, an employer may only request a credit report for a candidate or employee if the position falls under one of the following categories:
- Managerial positions
- Positions within the state Department of Justice
- Sworn peace officer or other law enforcement roles
- Positions where the information is required by law
- Roles involving regular access to an individual’s bank or credit card information, Social Security number, or date of birth (except for routine credit card applications in retail)
- Roles involving access to confidential or proprietary information, such as trade secrets
- Positions that involve regular access to $10,000 or more in cash belonging to the employer, customers, or clients during a workday
And, positions in which the employee is, or would be:
- A named signatory on the employer’s bank or credit card accounts
- Authorized to transfer money on behalf of the employer
- Authorized to enter into financial contracts on behalf of the employer
In addition to these limitations, employers must also follow specific procedures when requesting credit reports for employment purposes. Before requesting a credit report, the employer must provide the applicant or employee with written notice. This notice must indicate which of the legal exceptions to the general ban on credit checks applies and must include an option for the individual to request a copy of the report.
California’s Approach and National Momentum
SB 1061 is part of a growing movement across the U.S. to protect consumers from the negative effects of medical debt. California joins states like New York and Connecticut, which have enacted similar laws banning the reporting of medical debt. These state-level efforts reflect a broader push to reform the role medical debt plays in financial decisions.
On the federal level, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule in June 2024 to prohibit medical debt from being included in credit reports used for lending decisions. The CFPB found that medical debt has limited predictive value for creditworthiness and is often riddled with inaccuracies. If finalized, the rule would bar creditors from using medical debt in underwriting decisions and prevent credit reporting agencies from listing it in reports used by lenders.
This follows actions by Equifax, Experian, and TransUnion, which voluntarily stopped reporting medical debts under $500 in April 2023. Despite these efforts, the CFPB estimates that 15 million Americans still have $49 billion in medical bills on their credit reports, disproportionately affecting older Americans, low-income communities, and rural areas.
Preparing for SB 1061’s Impact
With the implementation of SB 1061, California employers conducting credit checks will need to prepare for the absence of medical debt information. As credit checks continue to be used selectively for employment purposes, this change ensures that individuals are not penalized for generally unavoidable healthcare expenses when being evaluated for a position. Employers should review their current background check practices to ensure compliance with SB 1061 and existing credit check laws while still assessing candidates’ financial responsibility, as necessary, through permissible means.