Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V)

<RULE> CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1022</CFR> <DEPDOC>[Docket No. CFPB-2024-0023]</DEPDOC> <RIN>RIN 3170-AA54</RIN> <SUBJECT>Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V)</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (CFPB) is issuing a final rule amending Regulation V, which implements the Fair Credit Reporting Act (FCRA), concerning medical information. The FCRA prohibits creditors from considering medical information in credit eligibility determinations. The CFPB is removing a regulatory exception that had permitted creditors to obtain and use information on medical debts notwithstanding this statutory limitation. The final rule also provides that a consumer reporting agency generally may not furnish to a creditor a consumer report containing information on medical debt that the creditor is prohibited from using. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective March 17, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> George Karithanom, Regulatory Implementation & Guidance Program Analyst, Office of Regulations, at 202-435-7700 or <E T="03">https://reginquiries.consumerfinance.gov/.</E> If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Overview</HD> <HD SOURCE="HD2">A. Summary of the Final Rule</HD> Information about a person's medical history and health is sacrosanct and among the most intimate and sensitive categories of data. Recognizing the uniquely sensitive nature of such information, Congress acted to limit the use and sharing of medical information in the financial system by amending the Fair Credit Reporting Act (FCRA) through the Fair and Accurate Credit Transactions Act of 2003 (FACT Act). <SU>1</SU> <FTREF/> In doing so, Congress “establish[ed] strong privacy protections for consumers' sensitive medical information,”  <SU>2</SU> <FTREF/> in line with the overarching privacy protection purpose of the FCRA. <SU>3</SU> <FTREF/> As part of these protections, Congress generally limited a creditor's ability to obtain or use a consumer's medical information in connection with any determination of the consumer's eligibility, or continued eligibility, for credit (creditor prohibition), subject to certain exceptions. <SU>4</SU> <FTREF/> One of these exceptions required the Federal financial banking agencies and the National Credit Union Administration (Agencies) to prescribe regulations that permit transactions that are determined to be necessary and appropriate to protect legitimate operational, transactional, risk, consumer, and other needs (including administrative verification purposes), consistent with congressional intent to restrict the use of medical information for inappropriate purposes. <SU>5</SU> <FTREF/> <FTNT> <SU>1</SU>  Fair and Accurate Credit Transactions Act of 2003 (FACT Act), Public Law 108-159, 117 Stat. 1952, 1999 (2003). </FTNT> <FTNT> <SU>2</SU>  149 Cong. Rec. H8122-02, H8122 (daily ed. Sept. 10, 2003) (statement of Rep. Kanjorsky). </FTNT> <FTNT> <SU>3</SU>  15 U.S.C. 1681 <E T="03">et seq.,</E> 1681(a)(4). </FTNT> <FTNT> <SU>4</SU>  15 U.S.C. 1681b(g)(2). </FTNT> <FTNT> <SU>5</SU>  15 U.S.C. 1681b(g)(5). </FTNT> In 2005, the Agencies issued a regulatory exception (financial information exception) to this statutory prohibition, permitting consumers' medical financial information to be obtained and used by creditors in connection with credit eligibility determinations if certain conditions were met. <SU>6</SU> <FTREF/> Since the financial information exception was created, a number of concerns have been raised about whether a regulatory exception that permits creditors to consider sensitive medical information about a consumer's debts and certain other types of medical information is necessary and appropriate to protect legitimate operational, transactional, risk, consumer, and other needs, and consistent with the congressional intent to restrict the use of medical information for inappropriate purposes. <FTNT> <SU>6</SU>  70 FR 70664 (Nov. 22, 2005). </FTNT> First, when the Agencies issued the financial information exception to the statutory prohibition, they did so without providing evidence or reasoning to support their main conclusion that an exception from a congressionally created legal requirement was warranted. Second, research has shown that medical debt has limited predictive value in predicting future default for credit underwriting purposes. Questions about the reliability of information about medical debt, as compared to information about other types of consumer debt, have been raised based on research performed by the CFPB and others. <SU>7</SU> <FTREF/> Medical debt may be less predictive of whether a consumer will pay a future loan, because medical debts can occur and are collected through unique circumstances and practices. For example, consumers often have limited ability to control the timing and types of medical services that are required. <FTNT> <SU>7</SU>   <E T="03">See, e.g.,</E> Kenneth P. Brevoort & Michelle Kambara, Consumer Fin. Prot. Bureau, <E T="03">Data point: Medical debt and credit scores</E> (May 2014), <E T="03">https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf. See also</E> Mark Rukavina, <E T="03">Medical Debt and Its Relevance When Assessing Creditworthiness,</E> 46 Suffolk U. L. Rev. 967 (2013), <E T="03">https://bpb-us-e1.wpmucdn.com/sites.suffolk.edu/dist/3/1172/files/2014/01/Rukavina_Lead.pdf.</E> </FTNT> Third, market participants, including in the consumer reporting industry and those most financially incentivized to assess the predictive value of medical debt, have reduced their reliance on medical debt in recognition of its limited utility. Consumer reporting agencies have removed certain medical debts from consumer reports. <SU>8</SU> <FTREF/> Major credit scoring companies have accorded less weight to, or excluded entirely, medical debt information in their newer scoring models. <SU>9</SU> <FTREF/> Similarly, some creditors have adjusted how their underwriting standards treat medical debt information. <SU>10</SU> <FTREF/> <FTNT> <SU>8</SU>   <E T="03">See, e.g.,</E> Bus. Wire, <E T="03">Equifax, Experian, and TransUnion Support U.S. Consumers With Changes to Medical Collection Debt Reporting</E> (Mar. 18, 2022), <E T="03">https://www.businesswire.com/news/home/20220318005244/en/Equifax-Experian-and-TransUnion-Support-U.S.-Consumers-With-Changes-to-Medical-Collection-Debt-Reporting.</E> </FTNT> <FTNT> <SU>9</SU>   <E T="03">See</E> AnnaMaria Andriotis, <E T="03">Major Credit-Score Provider to Exclude Medical Debts,</E> Wall St. J. (Aug. 10, 2022), <E T="03">https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729</E> (VantageScore CEO quoted as saying that having medical debt is not necessarily reflective of a consumer's ability to pay back a loan); Ethan Dornhelm, <E T="03">The Impact of Medical Debt on FICO Scores,</E> FICO Blog (July 13, 2015), <E T="03">https://www.fico.com/blogs/impact-medical-debt-ficor-scores.</E> </FTNT> <FTNT> <SU>10</SU>   <E T="03">See, e.g.,</E> Fed. Nat'l Mortg. Ass'n, <E T="03">Single Family Selling Guide,</E> B3-2-03 (2021), <E T="03">https://selling-guide.fanniemae.com/#Public.20Records.2C.20Foreclosures.2C.20and.20Collection.20Accounts</E> (noting that “[c]ollection accounts reported as medical collections are not used in the DU [Desk Underwriter] risk assessment”); Fed. Home Loan Mortg. Corp., <E T="03">The Single-Family Seller/Servicer Guide,</E> 5201.1 (2022), <E T="03">https://guide.freddiemac.com/app/guide/section/5201.1;</E> U.S. Dep't of Hous. & Urban Dev., <E T="03">Single Family Housing Policy Handbook,</E> 4000.1 (2021), <E T="03">https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-112021.pdf. See also</E> The White House, <E T="03">Fact Sheet: The Biden Administration Announces New Actions to Lessen the Burden of Medical Debt and Increase Consumer Protection</E> (Apr. 11, 2022), <E T="03">https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/11/fact-sheet-the-biden-administration-announces-new-actions-to-lessen-the-burden-of-medical-debt-and-increase-consumer-protection/</E> (announcing changes to certain Federal government underwriting standards to remove medical debt from evaluations of whether a consumer will repay a loan, including those for the U.S. Department of Agriculture's rural housing service loans and the Small Business Administration's loan programs and the Federal Housing Finance Authority's review of credit models). </FTNT> <HD SOURCE="HD3">Key Changes</HD> Given the developments over the past decade in its understanding of how consumer medical debt differs from other types of consumer debt and its uses in credit underwriting, the CFPB, now with primary regulatory authority over the FCRA, is updating the non-statutory exceptions in Regulation V to ensure the use of medical information is consistent with the congressional intent to safeguard consumers' privacy and restrict the use of medical information for inappropriate purposes. To do so, the CFPB is finalizing changes to how creditors and consumer reporting agencies treat medical information concerning a consumer's medical debt in §§ 1022.3, 1022.30, and 1022.38, as outlined below and discussed in further detail in pa ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 783k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━