DISCLAIMER: As the COVID-19 public health situation evolves, new regulations are being continually issued. This page/story/information may not include the most recent information. by Brian RileyDecember 1, 2020

Credit card borrowing is open to all. The Equal Credit Opportunity Act (ECOA) made fair lending the law of the land in 1974. Suppose a lender has a bias towards race, color, religion, national origin, sex, marital status, or age. In that case, they will answer to a raft of regulatory agencies, not least of which will be the Consumer Financial Protection Bureau (CFPB). Fair lending is not only right; fair lending is good business.

Today’s read comes from MedPage Today, a medical journal, in an article titled Late Payments, Credit Scores May Predict Dementia.  For those versed with data on the distribution of debt and age groups, this is an eye-catcher. Ask the NY Fed.

According to the most recent NY Fed Household Panel, debt owed by those over 70+ increased by a whopping 39% between 3Q2017 and 3Q2020. In contrast, debt owed by 18-29-year-olds increased only 10%; 30-39-year-olds by 18%, 40-49-year-olds by 12%, 50-59-year-olds by 10%, and 60-69-year-olds by 11%. With the 39% growth, it is essential to note that that age group carries $1.21 trillion in debt, almost 20% more than the 18-29 year cohort.

Now, consider the MedPage story.

• As early as 6 years before they were diagnosed with dementia, people with Alzheimer’s disease and related dementias were more likely to miss credit account payments than their peers without dementia (7.7% vs. 7.3%; absolute difference 0.4 percentage points, 95% CI 0.07-0.70), reported Lauren Hersch Nicholas, Ph.D., MPP, of Johns Hopkins University in Baltimore, and co-authors.
• They also were more likely to develop subprime credit scores 2.5 years before their dementia diagnosis (8.5% vs. 8.1%; absolute difference 0.38 percentage points, 95% CI 0.04-0.72), the researchers wrote in JAMA Internal Medicine.
• Higher payment delinquency and subprime credit rates persisted for at least 3.5 years after a dementia diagnosis.
• “Our study provides the first large-scale evidence of the financial symptoms of Alzheimer’s disease and related dementias using administrative, financial records,” Nicholas said.

I might be a (slowly) aging analyst working out of sunny Florida, but I cannot miss the obvious mental health issue connection that goes beyond Ability to Pay standards followed by lenders.

• “These results are important because they highlight a new source of data — consumer credit reports — that can help detect early signs of Alzheimer’s disease,” she told MedPage Today. “While doctors have long believed that dementia presents in the checkbook, our study helps show that these financial symptoms are common and span years before and after diagnosis, suggesting the unmet need for assistance managing money.”
• Erratic bill payments, risky financial decisions, and susceptibility to fraud are widely recognized as early signs of dementia. In recent research, low awareness of scams predicted incident cognitive impairment, suggesting changes in judgment may occur years before declines in memory or thinking become evident.

What caught my eye on this study is that it came from Johns Hopkins, a world-class medical center. And in reading, the researchers used the same data source I thought of when I read the headline.

• In their study, Nicholas and colleagues linked consumer credit report outcomes from 1999 to 2018 to claims data for 81,364 Medicare beneficiaries living in single-person households. The researchers used Federal Reserve Bank of New York Equifax Consumer Credit Panel data to look for two indicators of deteriorating financial management: payment delinquency (30 or more days late) and subprime credit scores (620 or lower on the Equifax Risk Score, which summarizes the predicted risk of defaulting on loans over the next 24 months based on credit history).

We cannot go out and adjust collection algorithms, but the takeaway is that older people owe more money than ever and that mental health issues play into credit card delinquency.

Links between delinquent payments and dementia accounted for 5.2% of delinquencies 6 years before diagnosis and 17.9% of delinquencies 9 months after diagnosis. By the quarter after diagnosis, people with dementia remained more likely to miss payments (7.9% vs. 6.9%) and were more likely to have subprime credit scores (8.2% vs. 7.5%) compared with people without dementia. Patterns of adverse financial events tied to dementia diagnoses were not seen in other medical conditions such as arthritis, glaucoma, or hip fracture.

Enough on the interesting stuff for now, after a little serenade.

Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group