NEWS: This week, the CFPB issued a final rule to amend Reg. V (which implements the Fair Credit Reporting Act or FCRA). The rule will prohibit creditors (including credit unions) from using medical debt information to determine credit eligibility, with only limited exceptions. It will also bar consumer reporting agencies from including medical debt in credit reports.
The rule is set to take effect 60 days after it is officially published in the Federal Register; however, there are already legal challenges to the rule, including this lawsuit filed by the Cornerstone Credit Union League, which asks a federal court in Texas to stop the law from taking effect. In addition, legal experts have noted that the upcoming change in administration may impact the rule’s implementation.
Basics of the new rule
The rule amends Reg. V to bar lenders from using certain medical information in making lending decisions.
The rule does include some limited exceptions. For example, loan applicants can continue to use medical related benefits as income in a loan application, and lenders can continue to verify when a loan is being taken out to pay for a medical procedure or device. Also, lenders will still be able to consider medical information for legitimate uses such as verifying medical-based forbearances or medical expenses that a consumer needs a loan to pay. The new rule gives examples of how the exceptions work, including illustrations of how creditors may use medical information provided by the consumer (or with the consumer’s authorization) as necessary to comply with the ability-to-repay requirements in Reg. Z (the Truth in Lending regulation).
The rule also
- Prohibits consumer reporting agencies (i.e., credit bureaus) from including medical debt information on consumer reports and credit scores they send to lenders; and
- Aims to enhance consumer privacy protections for sensitive medical information.
For additional details, please see the CFPB’s executive summary of the new rule.
The League had opposed the rule
Last August, The League commented on the CFPB proposed rule. We urged the CFPB to address the root causes of high medical debt, such as drafting rules to 1) require that health care providers and insurers adopt more transparent pricing and billing practices; and 2) improve the accuracy and fairness of medical debt reporting by allowing only legitimate and verified debts to be reported. For a recap of the letter, see this Compliance Courier.