Why Haven’t Loan Officers Been Told These Facts?

The Truth In Lending Act, 57 Years Ago

An overview of the TILA’s original principles

As with most legislation, bills do not pass into law without changes to their original language. In some cases, even the bills’ stated objectives change, as with the TILA.

The bill’s original sponsor, Senator Paul Douglas, envisioned consumer protection laws first and foremost. Douglas conceived of the benefits of effective disclosure as avoiding deception and warning borrowers of the high cost of credit.

Douglas also had a secondary goal with the bill. As an economist, he understood the necessity of competitive markets for the health of free market systems and better consumer protection. Accordingly, if lenders had to compete on the merit of transparent and bona fide credit offers, he believed the law would encourage greater “price competition” and better consumer credit decisions.

Senator Douglas was voted out of office before the TILA passed, and his protege, Senator William Proxmire, took up the legislation with notable changes. Most significantly, under Proxmire, the bill stated that the primary objective was not to increase consumer awareness of the cost of credit but to increase price competition, thus reversing the bill’s emphasis.

It is worth noting that over time, ensuing TILA amendments, in a sense, restored the TILA to its original intent: protecting consumers from abuse, neglect, deception, high-risk loans, risky loan features, and lender excesses. Consider the substantive changes to TILA wrought under HOEPA, MDIA, and Dodd-Frank.

January 1967
Excerpted Testimony of Senator William Proxmire

Today, I want to discuss the basic features of the truth-in-lending bill and to outline the reasons why I believe the bill is in the public interest. Mr. President, the truth-in-lending bill was originally introduced by our great former colleague, Senator Paul H. Douglas, of Illinois. Paul Douglas fought long and hard for truth in lending as he did for many other causes throughout his distinguished career. We in the Senate owe him a great debt of gratitude for his leadership and efforts on behalf of issues and ideas which many lesser men would have long since abandoned.

And so it is with truth in lending. Paul Douglas saw the need for the full disclosure of consumer credit charges long before any of us. He educated us and the American public and paved the way, not only for truth in lending, but for a heightened awareness of the need for legislation to protect the American
consumer on a variety of points.

Paul Douglas is a great economist and a great American. He was a great Senator. In all three roles, he truly believed in our free enterprise system and in the ability of the market to insure a more abundant life for all. He did not believe in governmental regulation or control, but rather saw the role of government as removing obstacles to free and open competition.

The truth-in-lending bill is a case in point. The market system requires information in order to function — information on the part of both buyers and sellers. When information channels become clogged, competition breaks down. The essence of the truth-in-lending bill is to restore full information in the consumer credit field-to insure a full disclosure of the cost of credit-and thus to permit the market system to function more effectively.

Mr. President, a truth-in-lending bill has been before this body since January 7, 1960. Most Senators have an accurate understanding of the objectives and principles of this legislation. Nevertheless, as is frequently true in the case of strongly contested legislation, fictions and myths arise from the contest. Let me first, therefore, enumerate the bill’s basic purpose and the principles on which this legislation is based.

The First Principle

The first principle of the bill is to insure that the American consumer is given the whole truth about the price he is asked to pay for credit. The bill would not regulate interest charges, but would rather aim at a full disclosure of the cost of credit so that the consumer can make an intelligent choice in the marketplace. I emphasize that it would not regulate interest charges. It would not set ceilings.

A crucial provision of the bill deals with expressing credit charges as an annual percentage rate. Without the knowledge of an annual rate it is virtually impossible for the ordinary person to shop for the best credit buy. However, in an effort to remove objections to earlier truth-in-lending bills, my new version makes it abundantly clear that lenders need only state an approximate annual rate and would not be held to absolute accuracy down to the last decimal point.

The LOSJ will continue this series with additional exposition of the original TILA’s four other principles.

 

 

BEHIND THE SCENES – CFPB Finalizes Rule to Remove Medical Bills from Credit Reports

Executive Order Halts CFPB Final Rules

WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) finalized a rule that will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans. The CFPB’s action will ban the inclusion of medical bills on credit reports used by lenders and prohibit lenders from using medical information in their lending decisions. The rule will increase privacy protections and prevent debt collectors from using the credit reporting system to coerce people to pay bills they don’t owe. The CFPB has found that medical debts provide little predictive value to lenders about borrowers’ ability to repay other debts, and consumers frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.

“People who get sick shouldn’t have their financial future upended,” said CFPB Director Rohit Chopra. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”

The CFPB’s research reveals that a medical bill on a person’s credit report is a poor predictor of whether they will repay a loan, and contributes to thousands of denied applications on mortgages that consumers would be able to repay. The CFPB expects the rule will lead to the approval of approximately 22,000 additional, affordable mortgages every year and that Americans with medical debt on their credit reports could see their credit scores rise by an average of 20 points.

The CFPB’s action follows changes made by the three nationwide credit reporting conglomerates – Equifax, Experian, and TransUnion – who announced that they would take certain types of medical debt off of credit reports, including collections under $500, after the CFPB raised concerns about medical debt credit reporting in early 2022. Additionally, FICO and VantageScore, the two major credit scoring companies, announced they have decreased the degree to which medical bills impact a consumer’s score.

The CFPB’s final rule brings regulations in line with Congress’s decision to safeguard consumers’ privacy by restricting lenders from obtaining or using medical information, including information about medical debts. Federal financial regulators later created an exception to this restriction, allowing creditors to consider medical debts. This carveout has enabled debt collectors to use the credit reporting system to coerce payments from patients for inaccurate or false medical bills.

The CFPB’s new rule amends Regulation V, which implements the Fair Credit Reporting Act (FCRA), to end this exception and establish guardrails for credit reporting companies, prohibiting them from including medical bills on credit reports sent to lenders, who are banned from considering them. The final rule:

  • Prohibits lenders from considering medical information: The rule ends the special regulatory carveout that previously allowed creditors to use certain medical information in making lending decisions. This means lenders will also be barred from using information about medical devices, such as prosthetic limbs, that could be used to require that the devices serve as collateral for a loan for the purposes of repossession.
  • Bans medical bills on credit reports: The rule bans consumer reporting agencies from including medical debt information on credit reports and credit scores sent to lenders. This will help end the practice of using the credit reporting system to coerce payment of bills regardless of their accuracy. Lenders will continue to be able to consider medical information to verify medical-based forbearances, verify medical expenses that a consumer needs a loan to pay, consider certain benefits as income when underwriting, and other legitimate uses.

Today’s rule advances the CFPB’s work to protect consumers from harms from medical debt and coercive debt collection practices. In October, the CFPB issued guidance clarifying that debt collectors violate federal law when they collect on inaccurate or legally invalid medical debts.

Regulatory Freeze Pending Review

President Donald Trump’s executive order, Regulatory Freeze Pending Review (See below), directs federal agencies to stop all rulemaking activity pending within the agency and consider all published rules as paused for 60 days. The CFPB final order is subject to subsection 3 of the Presidential Order. In light of President Trump’s executive order, the final rule will not go into effect as planned. At this point, it remains to be seen if the final rule will remain intact.

Regulatory Freeze Pending Review
January 20, 2025

By the authority vested in me as President by the Constitution and the laws of the United States of America, I hereby order all executive departments and agencies to take the following steps:

(1) Do not propose or issue any rule in any manner, including by sending a rule to the Office of the Federal Register (the “OFR”), until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule. The department or agency head may delegate this power of review and approval to any other person so appointed or designated by the President, consistent with applicable law. The Director or Acting Director of the Office of Management and Budget (the “OMB Director”) may exempt any rule that he deems necessary to address emergency situations or other urgent circumstances, including rules subject to statutory or judicial deadlines that require prompt action.

(2) Immediately withdraw any rules that have been sent to the OFR but not published in the Federal Register, so that they can be reviewed and approved as described in paragraph 1, subject to the exceptions described in paragraph 1.

(3) Consistent with applicable law and subject to the exceptions described in paragraph 1, consider postponing for 60 days from the date of this memorandum the effective date for any rules that have been published in the Federal Register, or any rules that have been issued in any manner but have not taken effect, for the purpose of reviewing any questions of fact, law, and policy that the rules may raise. During this 60-day period, where appropriate and consistent with applicable law, consider opening a comment period to allow interested parties to provide comments about issues of fact, law, and policy raised by the rules postponed under this memorandum, and consider reevaluating pending petitions involving such rules. As appropriate and consistent with applicable law, and where necessary to continue to review these questions of fact, law, and policy, consider further delaying, or publishing for notice and comment, proposed rules further delaying such rules beyond the 60-day period.

(4) Following the postponement described in paragraph 3, no further action needs to be taken for those rules that raise no substantial questions of fact, law, or policy. For those rules that raise substantial questions of fact, law, or policy, agencies should notify and take further appropriate action in consultation with the OMB Director.

(5) Comply in all circumstances with any applicable Executive Orders concerning regulatory management.

As used in this memorandum, “rule” has the definition set forth in section 551(4), title 5, United States Code. It also includes any “regulatory action,” as defined in section 3(e) of Executive Order 12866 of September 30, 1993, as amended, and any “guidance document” as defined in section 2(b) of Executive Order 13891 of October 9, 2019 (Promoting the Rule of Law Through Improved Agency Guidance Documents), when that order was in effect. Thus, the requirements of this memorandum apply not only to “rules” as defined in section 551(4) of title 5, but also to any substantive action by an agency (normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking. They shall also apply to any agency statement of general applicability and future effect that sets forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statutory or regulatory issue.

The OMB Director shall oversee the implementation of this memorandum, and any communications regarding any matters pertaining to this review should be addressed to the OMB Director. The OMB Director is also authorized to establish a process to review pending collections of information under the Paperwork Reduction Act of 1995, as codified in chapter 35, title 44, United States Code, and to take actions that the OMB Director deems appropriate based on that review, consistent with applicable law.

Should actions be identified that were undertaken before noon on January 20, 2025, that frustrate the purpose underlying this memorandum, I may modify or extend this memorandum, to require that department and agency heads consider taking steps to address those actions.

The OMB Director is authorized and directed to publish this memorandum in the Federal Register.

This memorandum shall be implemented consistent with applicable law.

 

 

Tip of the Week – Send Thank You Cards the Easy Way

Everyone talks about sending thank you cards and how great it is, but do you do this as well as you might? Execution is what separates a great idea from great value.

An idea without implementation or a faulty execution is worse than worthless because it is too often that these “great” ideas wrap themselves in a facade of value. Thus, the generation of the idea appears to be of value when it is not. You might ask, “Hold on there, Huckleberry, don’t great things start with great ideas?” Not really. Great things start with action. If you have great actions and great ideas, that’s gravy. As Humphrey Bogart said in Key Largo, “When your head says one thing and your whole life says another, your head always loses.” The idea plus action produces value. Dream big, but take small steps. Small steps are actionable steps.

Action: Look around and select a variety of card stock. Personalize it. If you are artistic or into photography, generate your own images. You can find millions of royalty and copyright-free images on the web. Manufacture cards that reflect the values and interests of the different types of people you will be thanking. Display your sense of humor (careful though), sincerity, and warmth. Create prose or gratitude writings that will convey how you feel about their thoughtfulness. There is absolutely no need for originality. There are thousands of aphorisms, proverbs, and articulate prose that you can gather from the internet. Make sure to provide appropriate attribution.

Create a Word document or similar artifact with thank you prose for different personality types. Find someone with nice handwriting to write what you want to say, and create the cards. Alternatively, if the aforementioned is not you, buy ready-made thank you card stock and send them out. Sign and deliver. Anything is better than just thinking about it.