COMMENT CALL: In June, the CFPB released a proposed rule to strictly limit creditors’ ability to obtain or use medical information for credit eligibility determinations.
In 2003, Congress amended the Fair Credit Reporting Act (FCRA) to restrict creditors’ use of medical information when making credit eligibility determinations, but it authorized the banking agencies to issue exemptions from the restriction. In 2005, the banking agencies issued a regulatory exception to let creditors obtain and use consumers’ medical financial information when making credit eligibility determinations – if certain conditions were met. Please see The League’s ii Release No. 0126, starting on p. 37, for information about those conditions.
The CFPB’s proposal to amend Reg. V (which implements the Fair Credit Reporting Act or FCRA) would roll back the 2005 exception. It would also:
- Limit consumer reporting agencies’ ability to furnish medical debt information to creditors;
- Prohibit lenders from taking medical devices as collateral for a loan; and
- Ban lenders from repossessing medical devices, like wheelchairs or prosthetic limbs, if people are unable to repay the loan.
“The CFPB is seeking to end the senseless practice of weaponizing the credit reporting system to coerce patients into paying medical bills that they do not owe,” said CFPB Director Rohit Chopra. “Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.”
In announcing the proposed changes, the CFPB wrote, “the CFPB’s analysis shows that medical debts penalize consumers by making underwriting decisions less accurate and leading to thousands of denied applications on mortgages that consumers would repay. Since these are loans people will repay, the CFPB expects lenders will also benefit from improved underwriting and increased volume of safe loan approvals.”
Specific changes
The proposal would make these key changes related to credit underwriting:
- Reg. V currently defines “medical information,” which covers information about medical debts. The proposal would add “medical debt information” as a new defined term. It would be a subset of “medical information” and would mean “[m]edical information that pertains to a debt owed by a consumer to a person whose primary business is providing medical services, products, or devices, or to such person’s agent or assignee, for the provision of such medical services, products, or devices. Medical debt information includes, but is not limited to medical bills that are not past due or that have been paid.”
- Reg. V currently has a “financial information exception for obtaining and using medical information” that generally allows creditors to obtain and use information about medical debts “in connection with any determination of the consumer’s eligibility, or continued eligibility, for credit” so long as certain conditions are met. The proposal would remove that exception and add a new exception to the other existing “specific exceptions for obtaining and using medical information” that would allow a creditor to use “medical information” for credit eligibility determinations only if the following three conditions are met:
- The medical information is used in a manner and to an extent that is no less favorable than the creditor would use comparable information that is not medical information in a credit transaction; and
- The creditor does not take the consumer’s physical, mental, or behavioral health, condition or history, type of treatment, or prognosis into account as part of the determination of the consumer’s eligibility, or continued eligibility, for credit.
- The medical information relates to income, benefits, or the purpose of the loan, including the use of proceeds. Medical information relating to income and benefits, includes, for example, the dollar amount and continued eligibility for disability income, workers’ compensation income, or other benefits related to a health or medical condition that is relied on as a source of repayment;
- The proposal would add a new provision to Reg. V that would prohibit Consumer Reporting Agencies (CRAs, commonly called credit bureaus) from furnishing a consumer report that includes medical debt information to a creditor unless the following two conditions are met:
- The CRA has reason to believe the creditor intends to use the medical debt information consistent with one of the specific exceptions; and
- The CRA is not otherwise prohibited, such as by state law, from furnishing information in a consumer report that would meet the definition of “medical debt information.”
- Under the current financial information exception in Reg. V, a creditor can consider medical information relating to expenses, assets, and collateral, including the value, condition, and lien status of a medical device that may be collateral for a loan when making credit eligibility decisions. The proposed removal of the financial information exception from Reg. V would bar creditors from obtaining and using medical information relating to expenses, assets, or collateral in making credit eligibility decisions, unless a specific exception applies.
The CFPB says that it “understands that medical information related to a consumer’s assets and collateral generally refers to medical equipment serving as an asset or as collateral for a loan, which a creditor may potentially seize or anticipate could be liquidated to pay off a loan.” It also says that “such medical equipment is often necessary and potentially lifesaving. Given the importance of medical assets and collateral to a consumer’s well-being, the CFPB has preliminarily determined that the financial information exception should not apply to information about medical assets and collateral.”
The CFPB asks for comment on its proposed approach regarding medical information relating to expenses, assets, and collateral, and it says that it is particularly “interested in feedback from creditors and their representatives about whether they take medical devices as collateral or into consideration as assets that may be used by consumers to pay a future debt obligation, and if so, the business justification for doing so.”
Other changes in the works
The CFPB has said that later this year it will publish separate proposed rules on the other FCRA changes it is considering. Those include broadening the definition of consumer reporting agency to include data brokers; limiting the permissible purposes for which credit reports can be furnished; and changing the rules governing the resolution of consumer disputes about their credit reports.
Make your voice heard
The League plans to comment on this proposal, and we’d like your input. How do you feel about the proposed changes? Would they benefit members/ consumers in a way that Wisconsin credit unions should support? Or would they impose unfair limits on credit union loan underwriting? How would they impact your lending process, systems, procedures, and so on?
Please share your thoughts with Paul Guttormsson by Aug. 5, so that we can reflect them in our comment letter, which is due to the CFPB by Aug. 12.