Pretending We Don’t Owe Money Doesn’t Mean We Don’t Owe Money

Markets always have their say. This was recently acknowledged, at least implicitly, by a federal judge in Texas. Judge Sean Jordan ruled against a Biden-era decree from the Consumer Financial Protection Bureau that tens of billions worth of medical debt be excluded from credit reports.

Jordan should be cheered for his ruling. But not just because it signals rationality on his part. Jordan most rates credit for protecting the health of consumers. Think about it.

As evidenced by the $49 billion worth of medical debt that the CFPB wanted removed from the credit reports of 15 million people, there’s a very real need for medical-related care in the United States. Put another way, no one runs up medical debt just because.

Which speaks to the foolhardy nature of the initial CFPB decree. Imagine if it had held such that debt related to healthcare could be left off credit reports. If so, it would on its face increase the incentive among those with medical debt to cease paying it, all based on the presumption that a failure to keep current on debts wouldn’t shrink one’s credit score.

It might seem harmless to some at first glance, but for the problem that unpaid bills don’t just happen. There’s a market reaction to a failure to pay. Specifically, a rising tendency for medical debts to go unpaid would most certainly result in reduced availability of medical care for all would-be patients.

What else would doctors and medical professionals be expected to do? If going forward the pretense will be that medical debt doesn’t exist on the matter of credit reports, logic dictates that medical care on credit would have to shrink to reflect the decree.

Which is just a comment that when governments err to protect a few, or even millions, the burden is suffered by exponentially more. If there’s no punishment in a credit sense for ignoring certain bills, then it only makes sense that would-be patients will similarly be ignored to the extent that their capacity to pay isn’t trusted as much thanks to a few, or many, bad apples. And it won’t just be limited to medical care. See yet again how much in the way of debt that the CFPB wanted erased from credit reports.

Stated simply, $49 billion isn’t exactly a tiny number. Which means that if it can no longer reflect on credit reports, the worth of credit reports themselves will decline. It’s the housing equivalent of a home appraisal, albeit one that lacks crucial information like square footage, bedroom and bathroom count, along with whether the house has central air conditioning. Would you buy such a house sight unseen? Hopefully the question answers itself.

Ideally it also explains the importance of credit reports reflecting reality, as opposed to a truncated version of the latter. Absent the truth, how can any provider of goods and services (not just a doctor or a hospital) confidently provide them on a to-be-paid basis? Which is a reminder of the point made at the beginning of this piece, that markets always have their say.

It’s worth remembering as states contemplate doing locally what Judge Jordan stood athwart nationally. That which obscures reality doesn’t alter reality, which means statewide decrees meant to mirror the CFPB’s attempted one will not just harm consumer health, but their ability to attain goods and services more broadly.