There is some dubious data behind CFPB's medical debt reporting rule
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There is some dubious data behind CFPB's medical debt reporting rule
On June 11, 2024, the Consumer Financial Protection Bureau announced a proposed rule medical debts medical debt reporting
In support of the director's statement, the CFPB cites a short research paper issued by two of its researchers in 2014. The CFPB claims that this paper showed that "medical debts provide less predictive value to lenders than other debts on credit reports." But, in fact, the paper makes no such definitive claim
That the CFPB pins its entire rulemaking on outdated research backed by nonpublic data is remarkable. Add to this the fact that even if additional research corroborated the researchers' original conclusions, it would establish only that medical collections may be relatively less predictive than other collections, not that medical collections have no predictive value whatsoever. Only a finding that medical collections lack any predictive power would logically justify a complete ban; otherwise, the CFPB would artificially exclude predictive information from the credit decision process, which would degrade the credit reporting system and increase risks for creditors and costs for borrowers.
A new government effort intends to tackle unfriendly consumer practices. The CFPB is tasked with addressing chatbot misuse and customer service "doom loops."
Equally remarkable is the fact that the CFPB's proposed rulemaking identifies no market failure necessitating government intervention. Historically, the CFPB has sought to identify market failures and then justify its rulemakings as necessary to address those failures. But in the case of medical debt reporting, the CFPB admits that credit bureaus and credit scoring companies have already taken steps in recent years to address unseasoned and small-dollar collections and adjust score weighting. Such responsive market developments tend to undercut claims of market failure. Perhaps that is why the CFPB ignores the question in its proposal, and therefore why the rule reads like a solution in search of a problem.
More remarkable still is the CFPB's lack of statutory authority to promulgate its rule. Sections 1681b(g)(2) and 1681c(a)(6) of the Fair Credit Reporting Act make clear that a creditor may obtain and use medical information pertaining to a consumer in connection with a credit decision, provided that the information is coded to prevent the identification of the medical provider or the medical procedures that gave rise to the debt. This careful delineation by Congress ensures that creditors are made aware of the financial details of a debt but not the medical details in order to protect patient privacy. The CFPB seemingly elides this fact and instead asserts that it has the rulemaking authority to prohibit medical debt reporting altogether. But such a claim cannot withstand scrutiny. Congress surely did not delegate to the CFPB the power to ban by rule that which Congress specifically permits by law.
Comments on the CFPB's proposal were due on August 12. Here is hoping the CFPB carefully reads them and reconsiders its flawed proposal. As currently drafted, it will be unlikely to survive legal challenge.
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