Tag: cfpb

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No More Medical Debt on Credit Reports? CFPB Takes Action to Protect Consumers

medical debt on credit reports

The Consumer Financial Protection Bureau (CFPB) is proposing a significant rule change that could impact millions of Americans: removing medical debt from credit reports. This move aims to improve credit scores, increase loan approvals, and prevent debt collectors from unfairly pressuring people into paying inaccurate medical bills.

Watch Uncle Aaron's short video on this topic...

Why is Medical Debt on Credit Reports a Problem?

The Fair and Accurate Credit Transactions Act (FACTA) originally restricted lenders from using medical information for credit decisions. However, a loophole allowed medical debts to stay on credit reports, even though they often:

Are inaccurate: Medical billing is complex, and mistakes happen.

Don’t predict future creditworthiness: Studies show medical bills aren’t a good indicator of someone’s ability to repay other loans.

Hurt credit scores: Medical debt on credit reports can significantly lower credit scores, making it harder to qualify for loans or get good interest rates.

What Would the CFPB Rule Change Do?

The proposed rule has several key parts:

Eliminating the Medical Debt Exception: Lenders would no longer be allowed to consider medical debt  when making loan decisions (with some exceptions).

Protecting Consumers from Debt Collectors: The rule aims to stop debt collectors from using credit reports to pressure people into paying inaccurate medical bills. This includes the practice of “debt parking,” where collectors buy and report medical debt without the consumer’s knowledge.

Banning Repossession of Medical Devices: People wouldn’t have to worry about losing essential medical equipment like wheelchairs if they can’t repay a loan.

Potential Benefits of the Rule Change

The CFPB estimates that if finalized, the rule could:

  • Increase credit scores by an average of 20 points for Americans with medical debt on their reports.
credit report score increase with no medical debpt
  • Lead to the approval of roughly 22,000 more mortgages per year.
  • Make the credit reporting system fairer and more accurate.

What Happens Next?

The CFPB’s proposal is currently open for public comment. This means you can have your voice heard and weigh in on the proposed rule.

This change has the potential to significantly impact how medical debt affects people’s financial lives. Stay tuned for further developments as the CFPB finalizes the rule.

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CFPB Credit Card Fee Crackdown: Will Mortgages Be Next?

On March 5, 2024, the Consumer Financial Protection Bureau (CFPB) finalized a rule significantly reducing late fees charged by large credit card issuers. This move, which caps the typical late fee from $32 to $8, is estimated to save American families over $10 billion annually. How does this CFPB credit card fee rule impact other financial service providers?

Will Mortgages Be Next?

While the rule directly impacts credit card companies, it could signal a broader shift in the CFPB’s focus towards stricter consumer protection measures across the financial services industry, including mortgages.

Here's why MLOs should pay attention:

Heightened Scrutiny: The CFPB’s recent action demonstrates its willingness to take on powerful financial institutions. This could lead to increased scrutiny of mortgage lending practices, with a focus on areas like loan origination fees, prepayment penalties, and potential fair lending violations.

Focus on Transparency and Fairness: The CFPB has consistently emphasized the importance of transparency and fairness in consumer financial products. MLOs should ensure they are adhering to best practices in borrower communication, fee disclosures, and loan suitability assessments.

Potential for Rule Changes: The CFPB is currently considering rule changes in other areas, including Wall Street compensation structures. While not directly related to mortgages, this highlights the agency’s willingness to implement new regulations to achieve its consumer protection goals.

What MLOs Can Do

MLOs can stay ahead of the curve by proactively adopting a consumer-centric approach. Here are some key steps:

Stay Informed: Regularly monitor CFPB announcements and updates to stay abreast of potential rule changes and regulatory priorities.

Review Practices: Conduct a self-assessment of your current lending practices to ensure compliance with existing regulations and a focus on fair lending principles.

CFPB credit card fee rule

Embrace Transparency: Clearly communicate loan terms, fees, and potential risks to borrowers throughout the mortgage process.

The CFPB credit card fee rule might be just the beginning. By prioritizing consumer protection and proactively adopting transparent lending practices, MLOs can navigate this evolving regulatory landscape and build trust with borrowers.