No, the FACTA does not prohibit financial institutions from considering an applicant’s credit information relating to medical or hospital accounts, but the use of this information is subject to limitations and requirements in the FACTA and its implementing regulation, Regulation V.
The FACTA limits the use of collection-related medical information about a credit applicant, with exceptions. An important exception permits financial institutions to consider collection-related medical information, provided that the information satisfies a three-part test: (1) it must be the type of information that routinely is used in making credit decisions, (2) your bank must treat the financials that contain the medical information in the same manner that it treats similar financial information that does not contain medical information, and (3) the medical information embedded in the financials must be disregarded. If your bank obtains medical information affecting an applicant’s credit rating, and the medical information otherwise satisfies this test, the information may be used when making credit decisions.
We recommend incorporating these limitations and the FACTA’s other provisions on the use of collection-related medical information into your loan procedures. It also is important to note that the bank must avoid any approach that would discriminate or have a disparate impact on any class protected by the Equal Credit Opportunity Act and Regulation B or the Illinois Human Rights Act.
An IBA article available on GoToIBA.com provides a detailed summary of the FACTA’s provisions regarding medical information, as well as its interaction with the Illinois Human Rights Act: Use of Medical Information under the FACT Act.
For resources related to our guidance, please see:
-
Regulation V, 12 CFR 1022.30(d)(1) (“A creditor may obtain and use medical information pertaining to a consumer . . . so long as: (i) The information is the type of information routinely used in making credit eligibility determinations, such as information relating to debts, expenses, income, benefits, assets, collateral, or the purpose of the loan, including the use of proceeds; (ii) The creditor uses the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction; and (iii) 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 any such determination.”)
-
Regulation V, 12 CFR 1022.30(d)(2)(i) (“Examples of the types of information routinely used in making credit eligibility determinations. . . . [A creditor may use] information about: (“(A) The dollar amount, repayment terms, repayment history, and similar information regarding medical debts to calculate, measure, or verify the repayment ability of the consumer, the use of proceeds, or the terms for granting credit; . . . .”)
- Regulation V, 12 CFR 1022.30(d)(2)(ii) (“Examples of uses of medical information consistent with the exception. (A) A consumer includes on an application for credit information about two $20,000 debts. One debt is to a hospital; the other debt is to a retailer. The creditor contacts the hospital and the retailer to verify the amount and payment status of the debts. The creditor learns that both debts are more than 90 days past due. Any two debts of this size that are more than 90 days past due would disqualify the consumer under the creditor’s established underwriting criteria. The creditor denies the application on the basis that the consumer has a poor repayment history on outstanding debts. The creditor has used medical information in a manner and to an extent no less favorable than it would use comparable non-medical information. . . .”)