Sept. 22: CFPB Updates This Week

The Consumer Financial Protection Bureau (CFPB) today announced it is beginning a rulemaking process to remove medical bills from Americans’ credit reports. The CFPB outlined proposals under consideration that would help families financially recover from medical crises, stop debt collectors from coercing people into paying bills they may not even owe, and ensure that creditors are not relying on data that is often plagued with inaccuracies and mistakes.

2022 report found that roughly 20% of Americans report having medical debt, but previous research by the CFPB has shown that medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations. Mistakes and inaccuracies in medical billing are common and can be compounded by problems such as disputes over insurance payments or complex billing practices.

The Consumer Financial Protection Bureau (CFPB) issued guidance about certain legal requirements that lenders must adhere to when using artificial intelligence and other complex models. The guidance describes how lenders must use specific and accurate reasons when taking adverse actions against consumers. This means that creditors cannot simply use CFPB sample adverse action forms and checklists if they do not reflect the actual reason for the denial of credit or a change of credit conditions. This requirement is especially important with the growth of advanced algorithms and personal consumer data in credit underwriting. Explaining the reasons for adverse actions help improve consumers’ chances for future credit, and protect consumers from illegal discrimination. Read more

Kentucky Federal District Court Issues Order Enjoining the CFPB From Enforcing the Small Business Data Collection Rule as to All Companies Effected by the Rule
On September 14th, the Federal District Court for the Eastern District of Kentucky granted the plaintiff’s motion to preliminarily enjoin the CFPB from implementing the Small Business Lending Rule (“Rule”) promulgated under section 1071 of the Consumer Financial Protection Act. As a reminder, the plaintiffs in the Kentucky lawsuit are the Kentucky Bankers Association and several Kentucky banks. Importantly, the order does not limit the beneficiaries of the injunctive relief to just the named plaintiffs and their members as happened in the earlier case challenging the 1071 Rule brought by the American Bankers Association, Texas Bankers Association in Federal District Court for the Eastern District of Texas. In the Texas case, the court stipulated that the only beneficiaries of the preliminary injunction would be the members of the plaintiff’s trade associations (American Bankers Association and Texas Bankers Association). As a result of the Texas court limiting the beneficiaries of the injunction to just the plaintiffs trade associations, several other trade associations intervened in the Texas lawsuit and filed motions for preliminary injunctions which are still pending before the court.The Kentucky opinion is welcome news for those financial institutions who were not members of the American Bankers Association or Texas Bankers Association and, therefore could not avail themselves of the relief granted by the Texas court. This order places all financial institutions on an equal footing and should moot all pending motions in the Texas court (and the flurry of motions to intervene in the Texas case). Read more

Banks Warn CFPB to Back Off on Scrutiny of Medical Credit Cards

Banks, debt collectors, and other companies said the Consumer Financial Protection Bureau lacks the authority to make specific rules governing medical credit cards and other financial products patients use to help pay health-care bills.

The CFPB, along with the the Treasury Department and the Department of Health and Human Services, in July sent out a request for information on the prevalence of medical payment products in the health-care market, and the potential problems they pose for patients and their families.

But health-care credit cards and other targeted products operate much in the same way as financing products in other sectors, so there’s no need for new rules, trade groups representing banks and debt collection agencies said in comment letters to the CFPB ahead of a deadline last week. Health-care providers groups also warned that overregulating such products could lead to people postponing necessary but expensive procedures.

What’s more, the CFPB doesn’t have the power to bring new regulations for medical payment products, the financial services industry said in its letters. Read more