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Credit Card Delinquency, Dementia, and Mental Health

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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.Brian Riley 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

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Michigan license number:   DM-0016282 Available to the public and licensed in Michigan.

Section 13(1)  When a licensee establishes a debt management plan for a debtor, the licensee may charge and receive an initial fee of $50.00

Section 13(2)  A licensee shall attempt to obtain consent to participate in a debt management plan from at least 51%, in number or dollar amount, of the debtor’s creditors within 90 days after establishing the debt management plan. If the required consent is not actually received by the licensee, the licensee shall provide notice to the debtor of the lack of required consent and the debtor may, at its option, close the account. If the debtor decides to close the account, any unexpended funds shall be returned to the debtor or disbursed as directed by the debtor.

Sec. 14. (1) A contract between a licensee and debtor shall include all of the following:

(a) Each creditor to which payments will be made and the amount owed each creditor. A licensee may rely on records of the debtor and other information available to it to determine the amount owed to a creditor.

(b) The total amount of the licensee’s charges.

(c) The beginning and termination dates of the contract.

(d) The principal amount and approximate interest charges of the debtor’s obligations to be paid under the debt management plan.

(e) The name and address of the licensee and of the debtor.

(f) Any other provisions or disclosures that the director determines are necessary for the protection of the debtor and the proper conduct of business by a licensee.

Sec. 18. (1) In addition to the fee described in section 13(1), a licensee may charge a reasonable fee for providing debt management services under a debt management plan. The fee under this subsection shall not exceed 15% of the amount of the debt to be liquidated during the express term of the plan.

(2) A licensee may offer a debtor the option to purchase credit reports or educational materials and products, and charge a fee to the debtor if the debtor elects to purchase any of those items from the licensee.  Fees charged under this subsection are not subject to the 15% limitation on fees described in subsection (1).

(3) Except for a cancellation described in subsection (4), in the event of cancellation of or default in the performance of the contract by the debtor before its successful completion, a licensee may collect $25.00 in addition to any fees and charges of the licensee previously received by the licensee. This $25.00 fee is not subject to the 15% limitation on fees and charges under subsection (1).

(4) A contract is in effect when it is signed by the licensee and the debtor and the debtor has made a payment of any amount to the licensee. The debtor has the right to cancel the contract until 12 midnight of the third business day after the first day the contract is in effect by delivering written notice of cancellation to the licensee. A cancellation described in this section is not subject to, and a licensee shall not collect, the fee described in subsection (3).

(5) If a debtor fails to make a payment of any amount to a licensee within 60 days after the date a payment is due under a contract, the licensee may, in its discretion, cancel the debt management contract if it determines that the plan is no longer suitable for the debtor, the debtor fails to affirmatively communicate to the licensee the debtor’s desire to continue the plan, or the creditors of the debtor refuse to continue accepting payments under the plan.

(6) A licensee shall not contract for, receive, or charge a debtor an amount greater than authorized by this act. A person that violates this subsection, except as the result of an inadvertent clerical or computer error, shall return to the debtor the amount of the payments received from or on behalf of the debtor and not distributed to creditors, and, as a penalty, an amount equal to the amount overcharged.

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Lansing, MI  48909-7720
877-999-6442

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