I. INTRODUCTION
Effective June 4, 2004, the FACT Act created restrictions on the manner in which financial institutions may obtain and use medical information. Generally, the FACT Act prohibits financial institutions from obtaining or using medical information about a person for employment purposes or about a consumer in connection with deciding whether the consumer is eligible for credit or whether the consumer is continually eligible for credit or insurance transactions. The Act defines fairly narrow exceptions under which financial institutions may obtain and use medical information.
II. DEFINITION OF MEDICAL INFORMATION
The term “medical information” is defined to meaninformation or data, whether oral or recorded, in any form of medium, created by or derived from a health care provider or the consumer that relates to:
The term “medical information” does not include:
III. RESTRICTED USE OF MEDICAL INFORMATION
A financial institution may use medical information to determine a consumer’s eligibility or continued eligibility, for credit if:
A financial institution may authorize, process or document a payment or transaction (i.e., maintain or service a consumer’s account) on behalf of a consumer in a manner that does not involve a determination of a consumer’s eligibility or continued eligibility, for credit.
In regard to affiliate sharing of information, provisions that usually allow information to be shared among affiliates not apply with respect to information disclosed to any person related by common ownership or affiliated by corporate control, if the information is:
IV. CONFIDENTIALITY OF MEDICAL CONTACT INFORMATION IN CONSUMER REPORTS
A person whose primary business is providing medical services, products or devices (or the person’s agent or assignee) who furnishes information to a consumer reporting agency on a consumer is considered a medical information furnisher for purposes of the FACT Act. The furnisher of medical information must notify the consumer reporting agency of the furnisher’s status as a furnisher of medical information. After such notification of such status, the name, address and telephone number of any medical information furnisher that has notified a consumer reporting agency of its status must be excluded from a credit report, unless:
V. FINAL RULES
The Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (FRB), Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS) and National Credit Union Administration (NCUA) collectively referred to as “federal regulatory agencies,” issued interim final rules, effective March 7, 2006, relating to the protection of medical information.
Section 411 of the FACT Act (codified at § 604 of the Fair Credit Reporting Act) prohibits obtaining and using medical information in credit eligibility decisions except as allowed by the federal regulatory agencies. Thus, the final rules create exceptions to the law’s general prohibition on creditors obtaining or using medical information pertaining to a consumer in connection with any determination of the consumer's eligibility or continued eligibility for credit. The final rules permit creditors to obtain and use medical information as “necessary and appropriate to protect legitimate operational, transaction, risk consumer and other needs.” Under the final rules, creditors may obtain and use medical information that is financial in nature, as well as medical information that is relevant to the financing of medical procedures, requests for medical accommodations and requests for forbearance. In appropriate circumstances, the final rules allow affiliates to share medically-related information with each other without becoming consumer reporting agencies. Each federal regulatory agency separately codified the final rules: FDIC – at 12 C.F.R. Part 334; FRB – at 12 C.F.R. Parts 222 and 232 (Regulations V and FF); OCC – at 12 C.F.R. Part 41; and OTS – at 12 C.F.R. Part 571. The final rules are effective on March 7, 2006.
A. Definitions Used in Medical Information Rules
Throughout the rules, there are also comprehensive sets of definitions of terms used, of which the following are the most pertinent:
Note: the term eligibility, or continued eligibility, for credit does not include: (a) any determination of the consumer's qualification or fitness for employment, insurance (other than a credit insurance product) or other non-credit products or services; (b) authorizing, processing or documenting a payment or transaction on behalf of the consumer in a manner that does not involve a determination of the consumer's eligibility, or continued eligibility, for credit; or (c) maintaining or servicing the consumer's account in a manner that does not involve a determination of the consumer's eligibility, or continued eligibility, for credit.
Note: the term medical information does not include: (a) the age or gender of a consumer; (b) demographic information about the consumer, including a consumer's residence address or e-mail address; (c) any other information about a consumer that does not relate to the physical, mental, or behavioral health or condition of a consumer, including the existence or value of any insurance policy; or (d) information that does not identify a specific consumer.
B. Obtaining or Using Medical Information in Connection with a Determination of Eligibility for Credit
Any financial institution (defined in the rules as a “creditor”) or other person that participates as a creditor in a transaction involving a financial institution is covered by the rules. In general, a creditor may not obtain or use medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit, except as otherwise provided in the rules. A creditor does not obtain medical information if it receives medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit without specifically requesting medical information. Therefore, a creditor that receives unsolicited medical information may use such information in connection with any determination of the consumer's eligibility, or continued eligibility, for credit to the extent the creditor can rely on at least one of the exceptions described in paragraphs 1. or 2., below. Note: the rules include examples, although they are not exclusive allowing compliance with an example, to the extentapplicable, to constitute compliance with the rules. An example is meant to illustrate only the specific issue described therein.
Examples: A creditor does not obtain medical information if: (a) in response to a general question regarding a consumer’s debts or expenses, the creditor receives information that the consumer owes a debt to a hospital; (b) in a conversation with the creditor’s loan officer, the consumer informs the creditor that the consumer has a particular medical condition; or (c) in connection with a consumer’s application for an extension of credit, the creditor requests a consumer report from a consumer reporting agency and receives medical information in the consumer report furnished by the agency even though the creditor did not specifically request medical information from the consumer reporting agency.
1. Financial information exception for obtaining and using medical information.
In general, a creditor may obtain and use medical information pertaining to a consumer in connection with any determination of the consumer’s eligibility, or continued eligibility, for credit if: (a) it is the type of information routinely used in making credit eligibility determinations, e.g., information relating to debts, expenses, income, benefits, assets, collateral or the purpose of the loan, including the use of proceeds; (b) the creditor uses the information that is no less favorable than it would use comparable information that is not medical information in a credit transaction; and (c) 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.
Examples – information routinely used in making credit eligibility determinations: a creditor may obtain and 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; (b) the value, condition and lien status of a medical device that may serve as collateral to secure a loan; (c) the dollar amount and continued eligibility for disability income, workers’ compensation income, or benefits related to health or a medical condition that is relied on as a source of repayment; or (d) 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.
Examples – uses of medical information consistent with the exception: (a) a consumer includes on a credit application information about two $20,000 debts, one of which is to a hospital and the other to a retailer. The creditor contacts both the hospital and the retailer to verify the debt amount and payment status and learns that both 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 creditors 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; (b) a consumer indicates on a mortgage loan application for $200,000 that she receives $15,000 in long-term disability income each year from her former employer and has no other income. Annual income of $15,000, regardless of source, would not be sufficient to support the requested amount of credit. The creditor denies the application on the basis that the projected debt-to-income ratio of the consumer does not meet the creditor’s underwriting criteria. The creditor has used medical information in a manner and to an extent that is no less favorable than it would use comparable non-medical information; (c) consumer includes on a home equity loan application for $10,000 that he has a $50,000 debt to a medical facility that specializes in treating a potentially terminal disease. The creditor contacts the medical facility to verify the debt and obtain the repayment history and current status of the loan. The creditor learns that the debt is current. The applicant meets the income and other requirements of the creditor’s underwriting guidelines. The creditor grants the application. The creditor has used medical information in accordance with the exception.
Examples – uses of medical information inconsistent with the exception: (a) a consumer credit application for $25,000 includes information about a $50,000 hospital debt. The creditor contacts the hospital to verify the amount and payment status of the debt, learning that the debt is current and that the consumer has no delinquencies in repayment history. If the existing debt were instead owed to a retail department store, the creditor would approve the application and extend credit based on the amount and repayment history of the outstanding debt. The creditor denies the application because of the hospital debt. The creditor has used medical information (the identity of the medical creditor) in a manner and to an extent that is less favorable than it would use comparable non-medical information; (b) a consumer meets with a loan officer to apply for a mortgage loan and, while filling out the loan application, orally informs the loan officer that she has a potentially terminal disease. The consumer meets the creditor’s established requirements for the requested mortgage loan. The loan officer recommends to the credit committee that the consumer be denied credit because the consumer has that disease. The credit committee follows the loan officer’s recommendation and denies the application. The creditor has used medical information in a manner inconsistent with the exception by taking into account the consumer’s physical, mental or behavioral health, condition, or history, type of treatment or prognosis as part of a determination of eligibility or continued eligibility for credit; (c) a consumer who has an apparent medical condition, e.g., uses a wheelchair or an oxygen tank, meets with a loan officer to apply for a home equity loan. The consumer meets the creditor’s established requirements for the requested loan and the creditor typically does not require consumers to obtain a debt cancellation contract, debt suspension agreement or credit insurance product in connection with such loans. Based on the consumer’s apparent medical condition, the loan officer recommends to the credit committee that credit be extended to the consumer only if the consumer obtains a debt cancellation contract, debt suspension agreement or credit insurance product. The credit committee agrees with the loan officer’s recommendation. The loan officer informs the consumer that the consumer must obtain a debt cancellation contract, debt suspension agreement or credit insurance product to qualify for the loan. The consumer obtains one of these products from a third party and the creditor approves the loan. The creditor has used medical information in a manner inconsistent with the exception by taking into account the consumer’s physical, mental or behavioral health, condition or history, type of treatment or prognosis in setting conditions on the consumer’s eligibility for credit.
2. Specific exceptions for obtaining and using medical information.
In general, a creditor may obtain and use medical information pertaining to a consumer in connection with any determination of the consumer’s eligibility or continued eligibility for credit: (a) to determine whether the use of a power of attorney or legal representative that is triggered by a medical event or condition is necessary and appropriate or whether the consumer has the legal capacity to contract when a person seeks to exercise a power of attorney or act as legal representative for a consumer based on an asserted medical event or condition; (b) to comply with applicable requirements of local, State or Federal laws; (c) to determine, at the consumer’s request, whether the consumer qualifies for a legally permissible special credit program or credit-related assistance program that is (1) designed to meet the special needs of consumers with medical conditions; and (2) established and administered pursuant to a written plan that (i) identifies the class of persons that the program is designed to benefit and (ii) sets forth the procedures and standards for extending credit or providing other credit-related assistance under the program; (d) to the extent necessary for purposes of fraud prevention or detection; (e) in the case of credit for the purpose of financing medical products or services, to determine and verify the medical purpose of a loan and the use of proceeds; (f) consistent with safe and sound practices, if the consumer or the consumer’s legal representative specifically requests that the creditor use medical information in determining the consumer’s eligibility or continued eligibility, for credit, to accommodate the consumer’s particular circumstances, and such request is documented by the creditor; (g) consistent with safe and sound practices, to determine whether the provisions of a forbearance practice or program that is triggered by a medical event or condition apply to a consumer; (h) to determine the consumer’s eligibility for, the triggering of, or the reactivation of a debt cancellation contract or debt suspension agreement if a medical condition or event is a triggering event for the provision of benefits under the contract or agreement; or (i) to determine the consumer’s eligibility for, the triggering of, or the reactivation of a credit insurance product if a medical condition or event is a triggering event for the provision of benefits under the product.
Example – determining eligibility for a special credit program or credit assistance program: a not-for-profit organization establishes a credit assistance program pursuant to a written plan designed to assist disabled veterans in purchasing homes by subsidizing the down payment for home purchase mortgage loans. The organization works through mortgage lenders, requiring them to obtain medical information about the disability of any consumer seeking to qualify for the program, using that information to verify the consumer’s eligibility for the program and forwarding that information to the organization. A veteran applies to a creditor for a home purchase mortgage loan. The creditor informs the consumer about the credit assistance program for disabled veterans and the consumer seeks to qualify for the program. Assuming that the program complies with all applicable law, including applicable fair lending laws, the creditor may obtain and use medical information about the medical condition and disability, if any, of the consumer to determine whether the consumer qualifies for the credit assistance program.
Examples – verifying the medical purpose of the loan or the use of proceeds: (a) if a consumer applies for $10,000 of credit for the purpose of financing vision correction surgery, the creditor may verify with the surgeon that the procedure will be performed. If the surgeon reports that surgery will not be performed, the creditor may use that medical information to deny the consumer’s credit application because the loan would not be used for the stated purpose; (b) if a consumer applies for $10,000 of credit for the purpose of financing cosmetic surgery, the creditor may confirm the cost of the procedure with the surgeon. If the surgeon reports that the cost of the procedure is $5,000, the creditor may use that medical information to offer the consumer only $5,000 of credit; (c) a creditor has an established medical loan program for financing particular elective surgical procedures and receives a loan application requesting $10,000 of credit under the program for an elective surgical procedure. The consumer indicates on the application that the loan’s purpose is to finance an elective surgical procedure not eligible for funding under the guidelines of the established loan program. The creditor may deny the consumer’s application since the loan is not for a particular procedure funded by the program.
Examples – obtaining and using medical information at the request of the consumer: (a) if a consumer applies for a loan and specifically requests that the creditor consider the consumer’s medical disability at the relevant time as an explanation for adverse payment history information in his credit report, the creditor may consider such medical information in evaluating the consumer’s willingness and ability to repay the requested loan to accommodate the consumer’s particular circumstances, consistent with safe and sound practices. The creditor may also decline to consider such medical information to accommodate the consumer, but may evaluate the consumer’s application in accordance with its otherwise applicable underwriting criteria. The creditor may not deny the consumer’s application or otherwise treat the consumer less favorably because the consumer specifically requested a medical accommodation, if the creditor would have extended the credit or treated the consumer more favorably under the creditor’s otherwise applicable underwriting criteria; (b) if a consumer applies for a loan by telephone and explains that his income has been and will continue to be interrupted on account of a medical condition and that he expects to repay the loan by liquidating assets, the creditor may, but is not required to, evaluate the application using the sale of assets as the primary source of repayment, consistent with safe and sound practices, provided that the creditor documents the consumer’s request by recording the oral conversation or making a notation of the request in the consumer’s file; (c) if a consumer applies for a loan and the application form provides a space where the consumer may provide any other information or special circumstances, whether medical or non-medical, that the consumer would like the creditor to consider in evaluating the consumer’s application, the creditor may use medical information provided by the consumer in that space on that application to accommodate the consumer’s application for credit, consistent with safe and sound practices, or may disregard that information; (d) if a consumer specifically requests that the creditor use medical information in determining the consumer’s eligibility, or continued eligibility, for credit and provides the creditor with medical information for that purpose, and the creditor determines that it needs additional information regarding the consumer's circumstances, the creditor may request, obtain, and use additional medical information about the consumer as necessary to verify the information provided by the consumer or to determine whether to make an accommodation for the consumer. The consumer may decline to provide additional information, withdraw the request for an accommodation, and have the application considered under the creditor’s otherwise applicable underwriting criteria; (e) if a consumer completes and signs a credit application that is not for medical purpose credit and the application contains boilerplate language that routinely requests medical information from the consumer or that indicates that by applying for credit the consumer authorizes or consents to the creditor obtaining and using medical information in connection with a determination of the consumer’s eligibility, or continued eligibility, for credit, the consumer has not specifically requested that the creditor obtain and use medical information to accommodate the consumer’s particular circumstances.
Example – for forbearance practice or program: after an appropriate safety and soundness review, a creditor institutes a program that allows consumers who are or will be hospitalized to defer payments as needed for up to three months, without penalty, if the credit account has been open for more than one year and has not previously been in default, and the consumer provides confirming documentation at an appropriate time. A consumer is hospitalized and does not pay her bill for a particular month. This consumer has had a credit account with the creditor for more than one year and has not previously been in default. The creditor attempts to contact the consumer and speaks with the consumer’s adult child, who is not the consumer’s legal representative. The adult child informs the creditor that the consumer is hospitalized and is unable to pay the bill at that time.
The creditor defers payments for up to three months, without penalty, for the hospitalized consumer and sends the consumer a letter confirming this practice and the date on which the next payment will be due. The creditor has obtained and used medical information to determine whether the provisions of a medically-triggered forbearance practice or program apply to a consumer.
C. Limits on Redisclosure of Information
If a financial institution receives medical information about a consumer from a consumer reporting agency or the financial institution’s affiliate, the financial institution must not disclose that information to any other person, except as necessary to carry out the purpose for which the information was initially disclosed or as otherwise permitted by statute, regulation or order.
D. Sharing Medical Information with Affiliates
Exclusions from the term “consumer report” in § 603(d)(2) of the FACT Act, which allow the sharing of information with affiliates, do not apply to financial institutions if the institution communicates to an affiliate: Medical information; an individualized list or description based on the payment transactions of the consumer for medical products or services; or an aggregate list of identified consumers based on payment transactions for medical products or services.
A financial institution may rely on the exclusions from the term “consumer report” in § 603(d)(2) of the FACT Act to communicate the information listed in the three points above to an affiliate: