Unpaid medical debt will no longer appear in New York residents’ credit reports under a bill signed into law by Gov. Kathy Hochul on Wednesday.

The law prohibits credit agencies from collecting information about or reporting medical debt. The law also bans hospitals and health care providers in the state from reporting such debt to the agencies.

New York is the second state after Colorado to enact such a law. A similar nationwide measure is being considered by the federal Consumer Financial Protection Bureau.

“Medical debt is such a vicious cycle. It truly hits low-income earners, but it forces them to stay low-income earners because they can’t never get out from under it,” Hochul, a Democrat, said at the bill- signing ceremony in New York City.

The new law will take effect immediately. “No one should ever have to make a horrible choice between their physical health and their financial health,” Hochul said.

The new law won’t necessarily stop all medical debt from affecting New Yorkers’ credit scores. It won’t apply to debt that is charged to a credit card, unless the card was issued specifically for health services, and it doesn’t apply to out-of-state health care providers.

People hit with hefty, sometimes unexpected medical bills can experience roadblocks in renting a house, securing car loans, or getting a new job because of a bad credit report. Credit reports are meant to measure how responsible a person is with their money, but they don’t account for life’s unexpected realities, like suffering from a disease or injury, supporters of the law argued.

More than 740,000 New Yorkers had unpaid medical debt owed to collection agencies on their credit reports as of February 2022, according to a study by the Urban Institute, a nonprofit research organization. The study also found that in most regions in the state, communities of color had higher rates of medical debt than predominately white communities.

Three major U.S. credit reporting companies agreed this year to stop counting unpaid medical debt under at least $500, but advocates have long said that isn’t enough.

The Urban Institute study found that in communities with the lowest incomes in New York, more than half of consumers with medical debt owed $500 or more.

State lawmakers approved the legislation in June despite Republican objections that the legislation is too broad and should not apply to non-emergency care.

The federal Consumer Financial Protection Bureau began its rulemaking process to remove medical bills from Americans’ credit reports in 2023. It’s part of the Biden’s administration long push for minimizing the importance of medical debt in how people’s creditworthiness is measured.

(AP)