The American Bankers Association (ABA) last week submitted a letter to the Consumer Financial Protection Bureau (CFPB) in which it expressed “significant concerns” about a proposed rule that would ban medical debt from appearing on consumer credit reports.
The proposal would bar credit agencies from sharing such debt with mortgage lenders, who in turn would be prohibited from making lending decisions based on how this type of debt could impact an applicant’s financial situation.
ABA agreed with one narrow element of the proposal — to exclude credit issued by a third-party lender from the term “medical information.” But the rest of the proposal raises serious concerns, including with a potential violation of the Administrative Procedures Act (APA) “because the CFPB is giving itself [powers] that Congress did not intend when lawmakers enacted the [Fair Credit Reporting Act (FCRA)],” the ABA wrote.
The CFPB claims that medical debt is not “sufficiently predictive of credit risk,” the ABA wrote. This is the core idea of the proposal, as opposed to preventing the inappropriate use of medical information.
“However, nothing in the FCRA permits the CFPB to suppress information based on its predictiveness, rendering the proposed rule inconsistent with the reasoned decision making required by the APA, and the CFPB relies on factors Congress did not intend for it to consider,” the ABA said in its letter. “Moreover, the proposal appears motivated by a desire to influence healthcare policy, which the CFPB may not do through the FCRA.”
The proposal, ABA contends, is not “based on evidence as it relies on outdated studies and nonrepresentative data,” and the CFPB does not adequately demonstrate that medical debt is not predictive of credit risk.
“If lenders are not able to consider medical debts in credit underwriting, consumer delinquencies and defaults will increase, impacting banks’ safety and soundness and consumers’ credit access,” the letter reads. “If lenders know that credit scores have increased, but believe that risk has not decreased, they will simply offset the increase by further tightening their lending standards.”
In the announcement of the proposal, CFPB Director Rohit Chopra said that the credit reporting system is often “weaponized” to “coerce patients into paying medical bills that they do not owe,” Chopra said. “Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.“
Last month, the bureau also proposed new servicing rules that would focus on providing more robust foreclosure assistance. Both the ABA and the Mortgage Bankers Association (MBA) were supportive of that proposal.
