We Can Have Credit Access Or The CFPB’s Alternate Reality, Not Both

A dollar invested in the S&P 500 in 2000 is worth $5.95 today. It’s an impressive return, but also a reminder: money is never easy. It can’t be. See the performance of the S&P once again if you’re confused.

The simple truth is that lenders and investors have choices. And they can’t make bad choices when loaning out money and/or investing precisely because the opportunity cost associated with missing out on credible loans and investments is so enormous. Throw in the genius of compounding when contemplating returns, and it’s easy to see why those with capital to put to work are so careful with it.

It’s something to keep in mind as Congress continues to deal with the errors made by the mis-named Consumer Financial Protection Bureau. The Agency’s ongoing attempts to formalize a ban on the inclusion of medical debt in credit reports indicate that its efforts to protect consumers are symbolic as opposed to serious and tangible. Which is no insight.

To see why, readers must first stop and consider why un-elected and un-accountable regulators at the CFPB would want to ban medical debt inclusion in credit reports to begin with. They wouldn’t be doing this if those debts tended toward small and inconsequential.

Which requires readers to subsequently stop and consider the credit-report implications of reports that lack information about what could potentially be substantial. Substantial is the operative word, and it’s the point.

Since medical debt can be sizable relative to other calls on individual income, omission of it results in a credit report that is anything but. The problem is that lenders and investors can’t part with precious funds to borrowers who have credit reports that are anything but.

Which is another reminder that the CFPB’s efforts to support consumers are symbolic as opposed to tangible. Reports that lack a crucial piece of information about would-be borrowers associate with the proverbial lending windows slamming shut. In short, the CFPB’s actions will limit credit availability, not expand it.

So, while some will contend that the CFPB’s actions are nice in theory but cruel in practice, it will be said here that the CFPB’s actions are cruel in theory precisely they’re cruel in practice. As individuals we rely on our credit scores to access credit, only for the CFPB to compromise their integrity, and with it, our ability to secure a loan.

What makes the CFPB’s actions worse is the blanket quality to them. If one rather pertinent piece of information is banned from credit reports, those for whom a complete credit report would enhance their capacity to borrow are potentially lumped in with those for whom a full credit report would expose a truth that the CFPB is trying to obscure.

Which is a long way of saying that if the CFPB gets its way, the credit implications will be chilling for borrowers good and bad. Credit is an effect of information, and the CFPB is trying to muzzle it.

Just the same, markets invariably have their say, though not as seamlessly when government gets in the way. Which means lenders will eventually find ways to discover information that the CFPB is trying to obscure, but at the cost of slower, more risk-averse credit flows in the near and long-term.

Better than the above outcome would be for Congress to rediscover its substantial power, power that includes oversight of regulatory bodies that exist at the pleasure of Congress, not themselves. In which case the constitutionally correct answer is for Congress to assert itself so that the misguided CFPB cannot.