The Consumer Financial Protection Bureau (CFPB) announced a rule last Tuesday that would prohibit credit reporting agencies from listing an individual's medical debt on their credit report, a measure that would affect both medical and credit availability. Critics point out that it can lead to declines.
The CFPB claims that the rule, which will go into effect in about two months, will “remove an estimated $49 billion in medical expenses from the credit reports of approximately 15 million Americans.”
According to the CFPB press release:
The CFPB states that medical debt provides lenders with little predictive value of a borrower's ability to repay other debts, and consumers may receive inaccurate bills or have claims that should be covered by insurance or financial assistance programs. revealed that they frequently reported being asked to pay for books.
CFPB Director Rohit Chopra said, “No one should have their financial future ruined if they get sick.” “The CFPB's final rule would eliminate special carve-outs that allowed debt collectors to abuse the credit reporting system to force people to pay medical bills they were not owed.”
Consumer Financial Infection Bureau
That sounds sympathetic. However, bureaucratic actions often fail to achieve their objectives and end up making matters worse.
“This is a classic example of the CFPB living up to its name,” Heritage Foundation researcher EJ Antoni told the Daily Caller. “All of its actions harm consumers economically rather than protect them.”
Peter Earle, senior economist at the National Bureau of Economic Research, told the Daily Caller that the rule will make it harder for non-wealthy people to borrow. Earl said:
Removing (medical) information reduces the accuracy of predicting a particular borrower's credit score. If financial institutions are unable to distinguish between high-risk and low-risk borrowers, they are likely to become more risk-averse by raising the interest rates associated with borrowings or extending loans with higher savings. In the kind of irony that only government regulators can reliably unleash, actions that seek to make it easier to obtain credit by blocking lenders' access to certain data about borrowers end up hurting low-income This would adversely affect middle-income and middle-income borrowers, turning unaffordability or large amounts of borrowing into a privilege. Reserved for wealthy people.
Additionally, the rule is likely to make it more difficult for Americans to obtain health care. There is much less incentive to pay off medical debt if it no longer impacts a person's credit rating and debt collectors may not respond to it. Therefore, doctors and hospitals will be wary of treating patients whose chances of payment are uncertain, and patients with lower financial means will be turned away.
bureaucrat bashers
Congressional Republicans were quick to attack the CFPB's last-minute rulemaking. Senate Banking Committee Chairman Tim Scott (R.S.C.) criticized Chopra for “pursuing headlines and political points rather than sound policy decisions.” And House Financial Services Committee Chairman French Hill (R-Ark.) called Chopra's “eleventh-hour effort to appease the White House…another example in a long line of poor decision-making.” I called it.
Credit reporting agencies, debt collectors, and creditors are going beyond mere lip service in taking the CFPB to court. Almost immediately after the rule was announced, two such coalitions filed suit against the rule in federal district court in Texas. They argue that the CFPB lacks legal authority to issue regulations because federal law explicitly allows medical debt to be included on credit reports, subject to certain privacy protections.
Exactly Equifax
Equifax, the nation's second-largest credit reporting company, made similar arguments in an August letter that called the then-proposed rules “arbitrary and capricious.” The eight-page document also watered down the CFPB's logic behind the rule.
Contrary to the CFPB's claim that medical debt has “little predictive value for lenders,” Equifax's analysis of its own data shows that medical debt has “little predictive value for lenders.”
Medical bill collections were predictive of consumer payment/delinquency rates. Additionally, when adding medical collections to a model that includes non-medical collections, the addition of medical collections yields a 34% predictive lift.
Equifax also charged that the agency's claims that debt collectors are hounding consumers over inaccurate medical bills are “not supported by substantial evidence.”
“The CFPB bases its decisions in part on evidence that consumers often believe they have received erroneous medical bills,” the credit bureaus wrote. “Authorities have provided no evidence that this perception is correct.”
In contrast, Equifax found that “medical collection information…is at least as accurate as other collection information.” Additionally, “medical collections are less frequently contested than other types of collectibles,” and “even when disputed, medical collections are verified at a higher rate than other types of collectibles.”
Equifax noted that the CFPB does not appear to have considered the potential side effects of rules such as those described above. Equifax argued that if medical debt were excluded from reporting, more than 3 million people could lose their credit scores, making it nearly impossible to borrow. And, “If medical debt is not taken into account, consumers may be offered more credit than if they were taken into account, which may make it more difficult to repay higher-cost credit extensions.'' there is.”
law of defects
With the Biden administration out of office and the rule already being challenged in court, there is a good chance it will be rescinded before it takes effect. As an unconstitutional regulation promulgated by an unconstitutional agency, that should be the case. Moreover, as the plaintiffs in one case put it, this rule is “not based on rational decision-making, but rather on political ideology.”
