Former CFPB Economist’s Groundbreaking Research Shows Lack of Analysis in Bureau’s Proposed Medical Debt Credit Reporting Rule

Report covers the impact of the proposed rule on providers, patients, consumers and the collection industry, among other critical findings.

Washington, D.C. –  Dr. Andrew Rodrigo Nigrinis, an economist at Legal Economics LLC., has issued a new economic analysis[1] (PDF) on the Consumer Financial Protection Bureau’s (“CFPB”) Proposed Rule on the Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information.

He criticizes the lack of comprehensive cost-benefit analysis on the proposed rules that could significantly impact two major industries in the U.S. The rule is expected to have an impact on the $4.5 trillion health care industry, including small and rural physician practices, as overall the provider community is expected to have $24 billion in the first year in reductions to their existing cash-flow from this rule.

The rule also impacts the $4.9 trillion consumer finance industry. These impacts include increased financing for unqualified borrowers, decreased access for credit-qualified borrowers, difficulties in repairing credit scores, and conflicts with existing regulations like the Truth in Lending Act (TILA) and Regulation Z.

On June 11, the CFPB proposed a rule that would introduce sweeping changes to the process of medical debt credit reporting and the use of information related to the nonpayment of medical debt for loan underwriting purposes. It would:

• Prohibit creditors from using medical financial information (including information about medical debt) in connection with credit eligibility determinations.
• Limit the circumstances under which consumer reporting agencies are permitted to provide medical debt information to creditors in connection with credit eligibility determinations.

“I have significant concerns about the CFPB’s proposed rule changes,” Dr. Nigrinis said. “There is a need for comprehensive cost-benefit analysis, transparency, and consideration of the potential impacts on various stakeholders, including medical providers and consumers. The report underscores the importance of accurate, detailed information for risk assessment in the dynamic nature of credit markets.”

Additional findings include:

• Impact on Providers and Patients. The proposed rule change on medical debt collection could significantly impact medical providers. If debt collection becomes less effective, providers will need to find ways to mitigate their reduced cash-flow. Rural areas and general medicine could face larger impacts. Patient access to health care may be curtailed.
• Impact on Consumers. As a result, the consumer finance industry lending to consumers would likely see increased financing for borrowers who may not be able to afford a loan due to lack of access to their complete credit reports, in turn decreasing access for qualified borrowers and creating an imbalance in the credit-based economy.
• Impact on Collection Industry. The proposed rule could significantly impact the debt collection industry, leading to an increase in collection costs or a decrease in collectible amounts, which would be passed on to the consumers of these services. Medical account collections referred to third-party debt collectors is expected to decrease by 8% or more, thus reducing revenue for medical service providers.

The CFPB has yet to study how providers will respond to reduced collections, such as by refusing to provide credit and thereby cutting off access to health care services for the consumers the bureau aims to help or whether health care providers will respond by raising prices for all patients, which would harm everyone.

Additionally, providers might request cash up-front for co-pays and deductibles, disadvantaging consumers who cannot afford to pay these amounts all at once, thus reducing their access to health care.

“The health care industry, which Congress did not authorize the CFPB to regulate, is a $4 trillion industry that requires robust analysis before making policy changes to ensure providers, patients, and their financial services partners are not harmed,” said Leah Dempsey, attorney and shareholder at Brownstein Hyatt Farber Schreck LLP, which worked with Dr. Nigrinis on the economic analysis. “Interestingly, the CFPB admits in its NPRM that they do not have enough data or information about the impact on the health care industry, and the information it does have leads it to believe there will be a need for more litigation from hospitals. This is concerning, and election year politics should not drive quick and unresearched decision making that will impact the health care community and a variety of other stakeholders.”

The bureau has also regularly claimed that medical debts carry little to no predictability related to a consumer’s credit, which forms a feeble basis for the proposed rule.

Dr. Nigrinis, who has reviewed the CFPB research, does not believe this claim has any validity.

Overall, the CFPB relies on internal research that fails to predict the expected consequences of its proposed rule to remove medical debt from credit reports. However, these studies lack rigorous peer review and don’t provide insights into the broader impact on medical debt collection or consumer credit.

Dr. Nigrinis’ report and other public comments point out the CFPB’s seriously flawed methodology for its main data point.  It’s also not transparent, such that it can’t be tested or replicated.

“There’s too much at stake for Americans’ access to quality health care by taking actions that only negatively affect the cash flow to the health care community without finding ways to replace those funds,” said ACA CEO Scott Purcell. “Congress is best suited to bring about a change that is this complex. The proposed rule, if finalized, would fundamentally alter the U.S. credit-based economy as it is today, which in turn will reduce access to credit and/or result in higher interest rates.”

ACA International (ACA), the association of credit and collection professionals, is the largest membership organization in the credit and collection industry. Founded in 1939, ACA brings together third-party collection agencies, law firms, asset buying companies, creditors and vendor affiliates, representing tens of thousands of industry professionals. ACA produces a wide variety of products, services and publications, including educational and compliance-related information; and articulates the value of the credit and collection industry to businesses, policymakers and consumers. www.acainternational.org.

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[1] Economic Analysis of the Consumer Financial Protection Bureau’s Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V)

By Andrew Rodrigo Nigrinis, Ph.D. https://policymakers.acainternational.org/wp-content/uploads/2024/07/AndrewNigrinisEconomicAnalysis-CFPB-FCRA-NPRM-July2024.pdf