ATR Submits Comment Letter Challenging CFPB Rule on Medical Debt 

On August 9, 2024, ATR submitted a comment letter in opposition to the Consumer Financial Protection Bureau’s (CFPB) proposed rule entitled: Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V). ATR argues that the proposed rule is not only an overreach of the CFPB’s authority but also a misguided approach that could have far-reaching negative consequences for both borrowers and lenders.  

The CFPB’s proposal to remove the consideration of medical debt in assessing a potential borrower’s creditworthiness is seen as an overreach of the agency’s statutory authority. As the comment letter notes: 

The proposed rule sets an unaccountable precedent expanding the CFPB’s authority without congressional authorization. 

The letter emphasizes that this move could fundamentally alter the duties of the CFPB as established by Congress, allowing the CFPB to unilaterally decide which types of debt should be considered in credit assessments, effectively amending the Fair Credit Reporting Act (FCRA)—a power that resides solely with Congress. While the FCRA limits certain types of information to credit agencies, a broad three-criterion exception enables creditors to take medical debts into consideration, since medical debt generally meets all three criteria:  

(1)   the information is the type of information routinely used in making credit eligibility determination   

(2)   the creditor uses the information in a manner and to an extent no less favorably than comparable nonmedical information   

(3)   the creditor does not take the consumer’s physical, mental, or behavioral health, condition or history, type of treatment, or prognosis into account when making the determination 

The CFPB argues medical debt is unfair and often an unexpected expense for consumers. Those debts are still legitimate financial obligations that should be considered in credit assessments. Eliminating medical debt from credit reports could lead to artificially inflated credit scores, which do not accurately reflect a consumer’s ability to manage debt. The letter points out:  

Eliminating medical debt information will likely reduce the accuracy of credit assessments by failing to take into account all owed debts. This will heighten borrower risk and artificially inflate creditworthiness. Credit scores use credit report data to gauge the reliability of a borrower. It stands to reason that a lower credit rating due to an outstanding debt balance will protect that consumer from additional debt exposure. Diluting the true credit worthiness of a borrower will only result in consumers being over-leveraged beyond what they can realistically afford. It does not benefit borrowers by allowing them to gain access to additional credit when they cannot afford it. In fact, this resembles the impetus for the subprime mortgage crisis. 

Excessive debt obligations negatively impact credit scores to deter consumers from taking on additional leverage that is unaffordable.  

ATR also raises significant legal concerns about the CFPB’s interpretation of its authority under the FCRA and the Consumer Financial Protection Act (CFPA):

The Administrative Procedure Act (APA) requires that agencies provide substantial evidence and sound reasoning when making regulatory changes…Congress has not issued any directive for the CFPB to pursue such a program—making it a potentially arbitrary and capricious rulemaking.

In addition to legal issues, ATR emphasizes that the private market is already addressing concerns related to medical debt without government intervention. The CFPB is behind the curve compared to private businesses and are advocating for duplicative measures that do not stand to reason. The letter states: 

Private companies and CRAs have been eliminating or decreasing the weighting of medical debt in newer versions of their credit risk models. The private market has already begun to address concerns the CFPB raised without government compulsion. Private businesses should make decisions regarding their approach to risk-taking without government interference. The CFPB’s proposal is duplicative and unnecessary.

The letter goes on to warn about the precedent for future regulatory overreach that the CFPB’s proposal could set: 

If the CFPB can exclude medical debt from credit reports, it opens the door for future exclusions based on other types of debt or considerations, further eroding the integrity of the credit reporting system.

This “slippery slope” could lead to a scenario where more categories of debt are considered for exclusion from credit reports, ultimately diminishing the predictive power of credit scores and harming both borrowers and creditors. 

The letter closes by urging the CFPB to respect the boundaries of its statutory mandates and allow the private market to continue addressing concerns related to medical debt without unnecessary government interference. The CFPB’s current path could lead to higher credit costs or reduced access to credit for consumers—ultimately harming those the CFPB aims to protect.