In comments today, the American Bankers Association said it had significant concerns with a proposed rule to prohibit lenders from considering medical debt and remove medical bills from most credit reports, arguing that the rule as drafted would increase credit risk and reduce credit availability for consumers.
The Consumer Financial Protection Bureau in June issued a proposed rule concerning the use and reporting of medical debt under the Fair Credit Reporting Act, or FCRA. Specifically, the rule would prohibit credit reporting agencies from sharing information about medical debts with lenders. It also would prohibit lenders from considering medical debt when making lending decisions.
In its comments, ABA said it agrees with the CFPB’s proposal to exclude credit issued by a third-party lender from the term “medical information.” However, the association had numerous concerns about the rest of the rule. Among other things, it said that the rule violates the Administrative Procedure Act, or APA, because the CFPB is giving itself authorities that Congress did not intend when lawmakers enacted the FCRA.
“The CFPB proposes to suppress medical debt information based on claims that it is not sufficiently predictive of credit risk, not to prevent inappropriate use of medical information,” ABA said. “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. Moreover, the proposal appears motivated by a desire to influence healthcare policy, which the CFPB may not do through the FCRA.”
The proposed rule is not based on evidence as it relies on outdated studies and nonrepresentative data, ABA said. The CFPB does not show that medical debt is not predictive of credit risk, and there is good reason to believe that it is predictive to a meaningful degree. The CFPB also did not adequately consider how the proposed rule will directly and materially harm banks and consumers, it added.
“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,” ABA said. “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.”
