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Question: Recently, we were faced with the need to get medical information from an applicant in order for the underwriter to approve the applicant’s eligibility. Since we had never had to do this before, it set off a lot of alarm bells in our compliance department. We are hoping you could offer some guidance. Basically, what we need to know is this: what are the conditions that allow us to obtain and use an applicant’s medical information in order to determine the applicant’s eligibility for credit?
The rule of thumb is that a lender 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 unless the use is authorized under the Fair Credit Reporting Act (FCRA). [15 USC §§ 1681b(g)(1), (2)]
With few exceptions, if the lender does not specifically request medical information a violation of this prohibition does not take place; that is, if the creditor 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, the information is not deemed to be a violation of the prohibition. [12 CFR § 334.30(c), 12 CFR § 222.30(c), inter alia]
With respect to use of medical information to determine borrower eligibility, the lender may use the consumer’s medical information in determining eligibility or continued eligibility for credit as long as:
1. The information is the type of information that is 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 loan proceeds);
2. The creditor uses the medical information 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,
3. 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 credit determination. [12 CFR § 334.30(d)(1), 12 CFR § 222.30(d)(1), inter alia]
This means that a lender may treat medical information of a type that is routinely used in credit eligibility determinations in the same manner that the creditor treats the same type of information that is not medical information.
It is worth mentioning that there are special exceptions that permit a creditor to obtain and use medical information. For instance, one exception is where a creditor uses medical information at the request of the consumer to determine if the consumer qualifies for a legally permissible special credit program or credit-related assistance program that is designed to meet the special needs of consumers with medical conditions, and other conditions are also satisfied. [12 CFR § 334.30(e)(1), 12 CFR § 222.30(e)(1), inter alia]
Jonathan Foxx is president and managing director of Lenders Compliance Group and Brokers Compliance Group, mortgage risk management firms devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456 or e-mail at [email protected].