The steady drumbeat of steps during Rohit Chopra’s tenure as CFPB Director to call into question the reliability and predictability of medical debt information in credit underwriting reached a crescendo last week with the CFPB’s issuance of a proposed rule to eliminate the exception in Regulation V (which implements the Fair Credit Reporting Act) that currently allows creditors to obtain and use medical debt information in connection with credit eligibility determinations.  The proposal would also generally prohibit consumer reporting agencies (CRAs) from including medical debt information on consumer reports.  The proposal would be effective 60 days after publication of a final rule in the Federal Register.  Comments on the proposal are due by August 12, 2024.

The proposal would make the following key changes:

  • Regulation V currently contains a definition of “medical information.”  While the existing “medical information” definition covers information about medical debts, the proposal would add “medical debt information” as a new defined term.  Under the new definition, “medical debt information” would be a subset of “medical information” that is defined as “[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.”
  • Regulation V currently contains 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 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 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 proposal would add a new provision to Regulation V that would prohibit CRAs 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 Regulation 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 effect of the proposed removal of the financial information exception from Regulation V would be to prohibit creditors from obtaining and using medical information relating to expenses, assets, or collateral in making credit eligibility decisions, unless a specific exception applies.  In its discussion of the proposal, the CFPB states 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 further states 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 states 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.”

The CFPB has said that it will publish separate proposed rules on the other FCRA changes under consideration later this year.  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.