OPINION:
A clear pattern has emerged within the federal government. Sweeping and costly regulations are being advanced that reflect a lack of market knowledge and justification and severely harm small businesses. Key agencies have consistently ignored the law regarding their required work to determine how proposed regulations affect small businesses.
The disruption generated by many of these rules will harm local economies, deter investment, stifle innovation, and compound the challenges businesses are facing, such as inflation.
A new House Small Business Committee report underscores the disconnect between the current regulatory culture and how federal agencies are supposed to approach their duties. The report states: “Since President Biden took office, his Administration has passed 891 final rules costing $1.47 trillion and 232.4 million paperwork hours.” This is a vast increase over previous administrations’ regulatory regimes.
Moreover, the method by which federal agencies comply with federal law regarding their statutory requirements (specifically, the Regulatory Flexibility Act) is “like a check-the-box exercise rather than actually analyzing the effects of their regulations. This is failing to live up to the spirit of the letter of the law and is causing small businesses to suffer,” according to the report.
The report notes an alphabet soup of federal agencies, including the Consumer Financial Protection Bureau, which has “improperly certified” at least four rules. Further CFPB rulemakings and mandates in the pipeline could impose adverse downstream effects on small businesses and consumers, including efforts to erase medical debt from credit reporting and eligibility.
The concept comes with a range of unintended consequences. It overlooks sensible practices in credit reporting that consider medical bill timing issues and other factors.
Under this specific rulemaking, the CFPB contacted various small-entity constituencies affected by the proposal — such as debt collectors, data brokers and financial institutions. Missing from the conversation, however, was the vast range of medical providers that would be affected if the federal government eliminated incentives for consumers to pay their medical bills. Their silence and reluctance, which in not surprising given the desire of many providers to remain in good standing with state and federal regulators, adds greater weight to the concerns voiced in the report on small businesses.
Naturally, many financial institutions are concerned that without accurate and appropriate data related to debt, it would be difficult to make decisions regarding credit, financing or mortgage requests and underwriting risk. Without this critical data, there is no doubt that banks and credit unions would pull back on lending, which not only undercuts their core business purpose but also means that many consumers could be denied access to financing. As a reminder, the financial services industry is dominated by small businesses, with 70% to 85% of firms employing 100 workers or less, according to 2021 Census Bureau data.
Small to midsize businesses also dominate the medical provider space. On average, between 90% to 95% have no more than 20 employees. These doctor’s offices, clinics, medical and diagnostic laboratories, outpatient clinics and specialty providers need revenue to keep their doors open. Many of these providers are already racked by government rules and an insurance system bureaucracy, making it difficult to predict cash flow and serve patients and clients efficiently.
Added pressures that may come with higher bill delinquencies would translate into higher patient fees and costs. Also, the trend in advance billing for surgeries or other procedures could accelerate, meaning less access to health care for many. As it is, the sustainability of the U.S. health care system is under threat. In 2023 alone, providers were forced to write off $17.4 billion in bad debt, according to a recent study by Kodiak RCA. Adding another costly twist could spell the end for many small providers serving rural and underserved areas.
The CFPB needs to consider the consumer-focused practices and innovations that have emerged to help Americans build solid credit. For example, the major credit rating agencies no longer include “all medical debt in collections with a balance under $500” in consumer credit reports, which builds on other measures such as banning paid-off debt from reports and delaying for one year the reporting of any medical debt sent to them via the credit bureaus. Industry leaders in the medical debt servicing industry have already adopted further consumer-protection measures, including no fees, no interest and no litigation.
In addition, credit reporting categories are being expanded to include options for consumers, such as regular payments for utility bills, insurance, streaming services and rental housing. One idea under consideration is the positive reporting of medical debt payments. Helping consumers build and strengthen credit improves customer satisfaction, not to mention their purchasing power. The efforts underway in this regard are good for business and, combined with helpful government policies, are the answer to helping more Americans achieve solid credit scores and financial wellness.
Ultimately, our economy is stronger and more resilient with private sector initiatives that are helping Americans build credit. CFPB overreach in this sensitive and complex area is fraught with possible bad outcomes. And one has to wonder what’s next on the CFPB’s list for debt “erasure.” The consequences would be monumental for the affected industries and the small businesses in those industries.
Hopefully, the CFPB’s limited outreach to some small businesses on the medical debt rule educated regulators about the vast small-business ecosystem that must be considered in this specific rulemaking. After all, regulations should not unduly punish and burden the players who are a critical part of the vital work that helps Americans achieve both financial and physical health.
• Karen Kerrigan is president and CEO of the Small Business & Entrepreneurship Council.
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