PORTLAND, Ore. (KOIN) – The Oregon Senate passed a bill on Wednesday that would prevent Oregon medical debt from appearing on credit reports.

Under Senate Bill 605, consumer reporting agencies would be banned from including any medical debt in credit reports and medical service providers -- such as hospitals and clinics -- would be banned from notifying consumer reporting agencies of owed money for care.

The bill comes as consumer reporting agencies collect information on credit history, such as how bills are paid and if an individual files for bankruptcy. From there, businesses use that information to decide whether to offer people loans, credit, insurance, or the opportunity to rent a home, lawmakers note.

“One big hospital bill can wreck your finances, even if you’re chipping away at the debt over time,” said the bill’s chief sponsor Senator Wlnsvey Campos (D – Beaverton & Aloha). “It should not stop you from qualifying for a car loan or getting a good interest rate on a mortgage.”

Officials added that credit cards used for health care can still be included in credit reports unless the card was specifically used to pay for medical services, noting that any violations to the new law could be subject to lawsuits as unlawful trade practices.

“Bouncing back from a serious illness is hard enough,” added Sen. Deb Patterson (D – Salem), chair of the Senate Health Care Committee. “We’re stopping that experience from dimming the financial future of responsible borrowers.”

In a late January letter testifying in support of the bill, Seth Frotman -- general counsel for the Consumer Financial Protection Bureau -- noted the agency finalized a regulation earlier in the month called the Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information.

That regulation bans medical bills from credit reports used by lenders and banned lenders from using medical information from influencing lending decisions. However, the regulation faces challenges in court, including two lawsuits from Texas.

A U.S. District Court in Texas has temporarily paused the CFPB rule from taking effect until June 15.

While the CFPB regulation faces legal challenges, Frotman noted "SB 605 would cement important protections against medical bill credit reporting into Oregon law," as similar legislation has been passed in other states including New York and Colorado.

Legislation surrounding medical debt comes as $88 billion in outstanding medical bills are in collections -- impacting one in five Americans, according to the CFPB.

Two Senate Republicans joined Democrats in passing the Oregon bill in an 18-10 vote.

The bill now heads to the House for consideration.