Deputy Director Martinez’s keynote address to the University Research Council
CFPB’s research teams are committed to helping the Bureau, policymakers, consumers and others better understand the challenges, risks and market developments facing consumers.
Thanks to your ideas, we are able to continually improve our research methods and our deliverables.
I would like to discuss two research papers that we recently published and some of the questions that remain.
On Wednesday, we released a market snapshot on consumers’ use of extended state payday loan payment plans, and in early March, we released a report on the burden of medical debt in the United States. .
Both topics have sparked renewed public interest as pandemic-related financial assistance has largely ended and medical bills received by millions of families during COVID have highlighted the financial burden of receiving care. medical.
When a borrower takes out a payday loan, the borrower agrees to repay the principal and fees with his next paycheck. If a borrower can’t repay, they can defer their loan to their next paycheck, but they must also pay an additional fee.
This cycle can cause many borrowers to pay more in fees than in principal.
The state’s extended payday payment plans allow borrowers to pay off their payday loans and any previously accrued fees in installments. These plans help borrowers avoid rollovers or defaults.
Twenty-six states have loan laws that allow payday lenders to operate. Sixteen of those states specifically require or allow lenders to offer extended payment plans.
However, available data shows that utilization rates for extended payment plans are generally lower than turnover rates.
Even in Washington State, which has perhaps the most borrower-friendly extended payment plan, the take-up rate is a small fraction of all payday loans, 13.4%.
The report highlights several possible reasons, including restrictive state laws and lenders concealing or misleading borrowers about payment plans. However, we don’t know the most relevant or common causes.
We note that not all states collect or publish data on payment plan usage and that there has been no meaningful research by academia or others.
The CFPB is a data-driven agency, and we would welcome any further collection and publication of additional payment plan data.
We also recently published the report, The burden of medical debt in the United States This study builds on the work done by the CFPB since its inception, including a critical report from 2014.
The 2014 report found both that including medical bills in credit reports unfairly lowered credit scores and that including medical bills in credit reports reduced the predictive value of credit scores. In other words, the inclusion of medical bills in credit reports harms both credit seekers and financial institutions trying to assess the risk that a given person will repay a loan.
Our most recent research has reaffirmed that medical bills are less predictive. It also shed light on the scale of the problem: $88 billion in unpaid medical bills in collections affecting one in five consumers.
Less than 21 days after our report was released, Equifax, Experian and TransUnion issued a joint statement announcing that they were changing the way medical bills would be reported on credit reports.
From July this year, paid medical bills will no longer be included in the credit reports issued by these three companies. Unpaid invoices will only be reported if they have remained unpaid for at least 12 months.
This announcement is a first step, but it is not enough. Several questions come to mind when considering the impact of this announcement.
First, how will this announcement affect communities of color, low-income consumers, and the underinsured and uninsured? Those who don’t have great insurance coverage, who are also more likely to be from communities of color and lower income communities, will they be more likely to have higher medical bills that will stay on their credit reports than higher income consumers?
Second, how will this announcement affect coercive debt reporting? Will there now be a strong incentive for consumers to pay medical bills on their reports, even if they are inaccurate or not actually due? Likewise, will debt collectors use this new incentive to their advantage?
Third, is it appropriate to treat unpaid medical bills as a typical “debt”? When it comes to medical expenses, patients often have no idea how much they will pay. They usually don’t have the opportunity to shop, especially when faced with emergencies. There is no promissory note or disclosure, as is the case with other loans.
Finally, if medical bills aren’t much help in predicting repayment of future loan obligations, should they even be included in credit reports? We need to ensure that credit reports are fair and provide an accurate accounting of a consumer’s credit obligations, but when it comes to medical billing, the system is rife with errors and errors.
I look forward to hearing your thoughts on these issues and to understanding how you think we can ensure that the credit reporting system cannot be weaponized, that consumers can access credit on fair and that consumers are not penalized for inaccurate bills and charges.