The recently issued (February 2022) report by the Bureau of Consumer Financial Protection on Medical Debt Burden in the U.S. is drawing attention to the issue of medical debt burden on consumers and the impact of that burden on debt collection and credit reporting practices. The report also notes the additional negative implications of medical debt ranging from financial ramifications (severe debt and bankruptcy) to physical and mental well-being impacts. The Bureau reports that:
- Medical debt was the most common third-party collection tradeline on credit reports in 2019 (58 percent of those reported)
- In 2020 17.8 percent of credit reports had at least one medical debt in collection
- Medical debt tends to impact Black and Hispanic individuals, young adults, and low-income individuals more heavily; Uninsured individuals are also more negatively impacted than insured individuals and families
- There is also a regional disparity, with medical debt being more prevalent in the Southeastern and Southwestern parts of the U.S.
There are some state and Federal laws that have been enacted to protect consumers from medical debt fraud and abuse. Because of an agreement between the major credit reporting agencies and most of the state attorneys general in 2015, medical debts do not appear on a consumer’s credit report until 180 days after the date of delinquency in order to give the insurance companies time to process payments to providers. States such as Washington, Maryland, Nevada, California, New Mexico, and California have enacted laws since 2019 that target some aspect of medical debt such as placing limits on interest rates on medical debts, requiring disclosures or regulating debt collection practices. At the Federal level, the No Surprises Act, which became effective on January 1, 2022, protects consumers from surprise medical bills for certain types of covered medical costs and misrepresentations related to such charges and which extends to the collection of those charges, which brings to bear the consumer protections of the Fair Debt Collection Practices Act and its implementing Regulation F.
Training and reminders about the consumer protections related to the use and collection of medical information in connection with credit transactions are timely because the Bureau has signaled through this latest report that it:
- Will be aggressively enforcing the laws and regulations related to debt collection and UDAAP that impact medical debts against all covered entities
- Will be looking at whether further action should be taken to prohibit unpaid medical bills from being reported on consumer credit reports or otherwise be restricted
Obtaining or Using Medical Information
Several provisions of the Fair Credit Reporting Act (FCRA) restrict the use of medical information in connection with credit reporting. The FCRA prohibits a consumer reporting agency (CRA) from furnishing a consumer report for employment purposes or in connection with a credit or insurance transaction that contains medical information unless the consumer consents to the furnishing of the information.
The FCRA also prohibits creditors from obtaining or using medical information pertaining to a consumer in connection with determining a consumer’s eligibility or continued eligibility for credit.
The Act defines medical information to be information or data in any form or medium, created or derived from a health care provider or from the consumer that relates to the physical, mental, or behavioral health or condition of an individual, the provision of health care to an individual, or the payment for health care to an individual. It does not include:
- Age, gender or other demographic information about the individual (such as address and email); however, be careful for obvious reasons when any consideration of demographic information would lead to fair lending or unfair banking practices
- Existence or value of any insurance policy
- Generic data or information that does not identify a specific consumer
Creditors may not ask for any medical information or medical-related questions on or with a consumer’s application for credit (any type of credit). Credit application forms and procedures should be designed to exclude any medical-related information questions. Personnel should be reminded to avoid any discussion of medical information or any discussion that could be adjacent to that topic.
It’s possible, however, for loan officers to get unsolicited medical information from consumers in the course of the credit application process. Consumers could volunteer information about their health or medical circumstances during a casual conversation. Some consumers are more chatty than others. It is not a violation of the FCRA or Regulation V if a creditor learns of medical information that is unsolicited. The creditor may not consider the consumer’s medical condition when determining the consumer’s eligibility for credit. However, the regulation provides for a number of example situations in which medical-related information may be used in the course of the credit evaluation process without violation the FCRA, including:
- Evaluating medical debts in a manner that is no less favorable than any other debts the creditor evaluates for creditworthiness
- Evaluating medical devices and equipment used as collateral in a manner that is no less favorable than any other collateral the creditor evaluates for creditworthiness
- Evaluating dollar amount and continued eligibility for disability income or any other income related to a health or medical condition that is a source of repayment
- Determining the identity of creditors to whom outstanding medical debts are owed in connection with an application for credit, including but not limited to, a transaction involving the consolidation of medical debts
- Determining and verifying the medical purpose of a loan and the use of the proceeds when financing is for medical products or services
- Determining whether the use of a power of attorney or legal representative that is triggered by a medical condition is necessary or appropriate
- Determining a consumer’s eligibility under a debt cancellation or debt suspension product is a medical condition is a triggering event
- To comply with state, local, or Federal law
- For purposes of fraud prevention or detection
A creditor may also consider a consumer’s medical information if the consumer specifically makes a request that it do so in order to accommodate the consumer’s special circumstances. This is a frequent practice at many banks where medical debts reflected on a consumer’s credit report are explained and favorable loan decisions are made despite low credit scores. In making such a request, the consumer may reveal medical information in the course of discussion and explaining medical debts.
The regulation also permits creditors to obtain and use medical information if it is obtained as part of a Special Purpose Credit Program that is created under the parameters of ECOA and Regulation B or another legally permissible credit-assistance program that meets the requirements of the regulation.
Whenever, medical information or related medical conditions are revealed in the course of a credit application or evaluation anytime throughout the life of the loan, it would be important to document the file to demonstrate that the information was obtained and/or used in compliance with the FCRA and Regulation V. It would be important to document:
- How the information was obtained (from the consumer, a legal representative or other third party, etc)
- What you did with the information
- That the information did not affect the credit decision or pricing or how the requirements of the applicable special purpose credit program or credit assistance program was met, as applicable
- How lending staff is trained to comply with the provisions of the Act and regulation
Look beyond the scope and letter of the law and regulation. Ensure that practices are fair and reasonable. UDAAP applies here. Ensure that customers are treated consistently. Fair lending applies here.
Copyright © 2022 Compliance Action. Originally appeared in Compliance Action Vol. 26, No. 11, 3/25/2022
Compliance Lifeline