After a couple of subpar seasons in the 1980s, the late and legendary Washington Huskies football coach Don James instructed his assistants to bring their own stopwatches on recruiting visits. No longer would the team offer scholarships to high school blue chips absent concrete evidence of their speed in the 40-yard dash, among other measures of speed. In life, sports frequently instruct, and they do as the Consumer Financial Protection Bureau (CFPB) aims to foist a more stringent version of the Fair Credit Reporting Act on credit bureaus, medical information companies, landlords, etc.
What the CFPB plainly misses is that a lack of information is costly, and it is to borrower and lender, credit card holder and issuer, and certainly for renter and landlord alike. To see why, consider the Huskies yet again.
Coach James’s analysis of the why behind his team’s slide was a noticeable lack of team speed. It turns out high school media guides and high school coaches eager to get their players to the next level were providing faulty information about them. Sometimes recruiting based on bad data, Washington extended scholarship offers to players whose on-field speed didn’t resemble that reported. Hence James’s instruction for assistants to time players on their own.
Naturally bad or insufficient information had a negative impact on recruits too. With the data provided no longer seen as credible, one of college football’s most prominent programs of the final quarter of the 20th century was less eager to extend much-coveted scholarship offers. The cost of being wrong was too great in ways that harmed football program and player alike. Enhanced information fixed the problem.
Back to credit, the CFPB claims it’s protecting the proverbial “little guy” by limiting the amount of information that can be gathered about him by big, deep-pocketed credit bureaus and creditors. This includes a desire to limit the gathering of medical-debt information by decree.
On its face, what the CFPB is doing brings to mind obvious questions about legality. As opposed to enforcing laws passed by Congress, the CFPB is attempting to arrogate to itself the role of lawmaker. Yet it has no constitutional right to do anything of the sort. On a national level, Congress writes laws while frequently outsourcing enforcement of those laws to agencies like the CFPB.
From there, stop and consider what the Agency is doing. It’s rather specifically attempting to enforce a lack of information gathering and dissemination about the debt levels of potential borrowers, medical debt in particular. This isn’t nothing, and readers likely know why in light of how sizable medical debt can sometimes be. For the CFPB to decree accession and dissemination of this information by credit bureaus as unlawful is for it to substantially compromise the quality of information about potential borrowers, credit-card holders, renters, etc. Which means that in trying to protect individuals seeking credit of various kinds, the CFPB is unwittingly harming them. See the Huskies yet again.
A lack of credible information decades ago once again compromised the quality of Husky teams, and as a consequence reduced the willingness of the team to extend scholarship offers. Those offers were and are very expensive, and offers made without correct information were proving costly to the University and team.
It’s no different for lenders, credit card issuers or landlords today. If they can’t attain a full picture of the would-be borrower or renter’s credit information, they must logically refuse a bigger number of borrowers or renters, and raise the cost of borrowing or rent, or both. In the market economy, which is ultimately all economies, prices eventually must reflect reality.
Which means that if the CFPB operates outside the bounds of the Constitution and simple market constraints as a way of restraining credit bureaus from reporting reality, lenders, credit-card issuers and landlords will respond accordingly. Operating with insufficient information, they’ll protect themselves via more credit refusals, less credit on offer in general, and surely higher costs of credit. How unfortunate and unnecessary.
You see, in demanding better information from players and coaches alike, Coach James and the Huskies reversed their fortunes. With more team speed, their dominance ensued, including a national championship in 1991. With better information, credit issuers will preside over similarly positive outcomes that, in boosting the ability of creditors to know their customers, will most certainly accrue to customers desirous of credit.
