May 28, 2004
Office of the Comptroller of the Currency
250 E Street, S.W.
Public Information Room
Mail Stop 1-5
Washington, D.C. 20219
Attention: Docket No. 04-09
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve
System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Attention: Docket No. R-1188
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Re: RIN 3064-AC81
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
Attention: Docket No. 2004-16
Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428
Re: 12 CFR Part 717
RE: Fair Credit Reporting Medical Information Regulation:
OCC Docket No. 04-09, Board Docket No. R-1188, FDIC
RIN 3064—AC81 OTS RIN 1550-AB88 (69 Fed. Reg.
23380 [April 28, 2004])
Dear Sirs and Madams:
The Mortgage Bankers Association (“MBA”) appreciates the opportunity
to comment on the joint proposed rule (the “Proposal”) of the Office of
the Comptroller of the Currency, Fair Credit Reporting Medical
Information Regulation Board of Governors of the Federal Reserve System,
Federal Deposit Insurance Corporation, Office of Thrift Supervision, and
National Credit Union Administration (the
“Agencies”) concerning “Fair Credit Reporting Medical Information
Regulations” (the “Regulations”). 69 Fed. Reg. 23380 (April 28, 2004).
The Proposal implements provisions of the Fair and Accurate Transactions
Act of 2003 (“FACTA”) designed to limit the sharing and use of
information about consumers’ medical history and current health status.
MBA members recognize the particular sensitivity of medical
information and are committed to using such information only when it is
necessary for prudent loan underwriting and servicing. As was noted
during the congressional debate on FACTA, the provisions to be
implemented by this rule are intended “to protect the medical
information of individuals without disrupting access to low[-]cost
credit and the security of information.” 149 Cong. Rec. H12218 (Nov. 21,
2003) (remarks of Rep. Kelly). MBA commends the Agencies for creating
exceptions in the Proposal that will give creditors access to
health-related information when they have a legitimate business need for
that information, and generally supports the Proposal. We believe,
however, that there are some improvements that could be made to fulfill
the Agencies’ goal of “protect[ing] legitimate operational [and]
transactional . . . needs” as well as consumer privacy expectations. See
69 Fed. Reg. 23382 (April 28, 2004).
Request to Use Medical Information: Procedural
A number of our comments concern the implications of the Agencies’
exception permitting a financial institution to obtain and use medical
information if the consumer has requested such use in writing. See
proposed § _.30(d)(1)(vi). Because this is likely to be an important way
for financial institutions to obtain the medical information that they
occasionally need, we think it important that the mechanism for handling
this request be made clear. We therefore suggest that the Regulations
provide a simple
form that can be used to evidence the consumer’s request. Proper use of
the form should provide a safe harbor from liability under the FCRA.
Particularly in a brand-new regulation, such procedural certainty will
go a long way towards securing industry compliance.
Request to Use Medical Information: Substantive
The Proposal reflects the Agencies’ understanding that a consumer may
make a very specific request of the creditor to consider targeted
medical information. For example, a consumer whose credit history shows
a bankruptcy may provide evidence that a particular illness or injury
caused the bankruptcy. Credit policy guidelines commonly allow
underwriters to treat a medically-related bankruptcy more favorably than
other bankruptcies. The consumer request exception, however, which is
the mechanism in the Proposal for conveying medical information of this
sort to a creditor, is drafted so narrowly that it could be read to
limit the financial institution to obtaining and using only “the
specific medical information” which the consumer designates in writing
that the financial institution may consider, and no other medical
information even if it is potentially relevant.
Putting this power entirely in the hands of the consumer leaves
lenders open to potential fraud. To continue with the above example,
suppose that the consumer claims that a bankruptcy related to a
disability and produces a doctor’s statement discussing the disability.
It is unclear from the Proposal whether a creditor would then have any
right to obtain or consider corroborative information about whether the
consumer filed a disability claim or about the disposition of that
claim. Applicants should not be allowed to “cherry-pick” by limiting the
creditor to obtaining only favorable medical information about them.
Therefore, the Regulations should state that, once the consumer has
designated specific medical information, the creditor may obtain any
other medical information relevant to verifying the accuracy of the
medical information provided. This issue raises the question of what
happens if the financial institution and the consumer differ as to how
much medical information the financial institution should have to make
its credit decision. The financial institution should be able to obtain
all of the
information it deems necessary to make that decision. The Regulations
should make clear that, if a financial institution requests that a
consumer provide medical information so that the financial institution
can render a credit decision, and if the consumer refuses or provides
only a portion of the requested information, then the financial
institution can deny credit to the consumer on the grounds that the
consumer’s application was incomplete, without violating the FCRA.
Mental Capacity
Moving beyond consent-based use of medical information, the Proposal
allows creditors to use medical information:
(i) To determine whether the use of a power of attorney or legal
representative is necessary and appropriate;
(ii) To comply with applicable requirements of local, state, or
federal laws; [or]
. . . .
(iv) For purposes of fraud prevention.
This addresses the situation, recognized by the Agencies, that some
states have enacted laws that require consideration of medical
information relating to mental capacity to prevent “financial abuse by
caregivers.” 69 Fed. Reg. at 23386.
MBA believes that the § __.30(d)(1) exceptions should be clarified in
several ways to address the mental capacity issue. It is unclear whether
the Proposal, as drafted, allows creditors to consider whether the
applicant has the mental capacity to enter into a binding contract and
create a valid security interest in the property. For example, if an
applicant relies on disability income to qualify for the loan, and
verification of the income reveals that part or all of the disability
relates to a mental disability, many lenders currently require evidence
of mental capacity to ensure that the borrower can enter into an
enforceable agreement.
Furthermore, even when the applicant meets the minimal standard of
legal capacity, there may be situations in which the creditor believes
that the consumer may not fully understand the nature of the loan or be
able to determine whether accepting it would be in his or her best
interests. As the Agencies recognize, making a loan under these
circumstances could violate specific prohibitions against predatory
lending, but the rule should also make clear that creditors may also
consider such medical information to avoid committing an unfair or
deceptive act or practice under federal or state law. As drafted, the
Proposal does not even clearly allow a lender to consider information
presented by a consumer’s relatives that the consumer suffers from a
mental disorder that prevents him or her from exercising sound judgment.
In those circumstances, if the lender could not consider “medical
information,” it would be placed in a position where it either violated
FCRA or made a loan that could be characterized as “predatory.”
Therefore, MBA urges the Agencies to revise the Regulations to state
that a creditor may consider information indicating that the applicant
may lack the mental capacity to contract or otherwise may be unable to
exercise sound judgment in evaluating whether the loan is in his or her
best interests. Further, the regulation should state that “applicable
requirements of local, state, or federal laws” include prohibitions in
federal and state laws against unfair and deceptive acts or practices.
Disability and Workers Compensation Income
The Agencies have recognized in proposed § __.30(c) that creditors
must be able to verify medical information when income on which the
applicant relies to establish creditworthiness is contingent on a
medical condition, such as disability income. Lenders must often collect
additional information from physicians when an applicant is receiving
workers compensation, to verify that the applicant is likely to continue
to receive the income “for the foreseeable future.” For example,
Department of Veterans’
Affairs, Lenders Handbook § 4.02 (July 1, 2000). An example should be
added to the Regulations to make clear that it is permissible to obtain
and use medical information in this common situation. The Regulations
should also clarify that information about the terms of a disability
insurance policy, which may be important in underwriting some
applicants, such as self-employed borrowers, is not “medical
information” and may be freely obtained and used if the applicant relies
on it in establishing creditworthiness.
Life Expectancy as a Legitimate Concern of Creditors
Proposed § __.30(c) shows the Agencies’ broad understanding that
financial institutions may have legitimate reasons for wanting medical
information concerning consumers, but it does not specifically authorize
consideration of health status in connection with credit products that
are tailored to individuals whose life expectancy is limited. For
example, although most current reverse mortgage products do not take
health status into account, lenders may, in the future, offer reverse
mortgage loans outside their normal consumer age cut-offs if a younger
person can show that she is terminally ill. This product would be
analogous to a viatical settlement of a life insurance policy. In
situations of this type, where life expectancy is an essential factor in
determining price and eligibility for the credit product, creditors
should not be prohibited from using that information in the credit
decision. See § __.30(c)(1)(ii).
Continuing advances in medical care concerning slowly progressive,
fatal diseases like AIDS and some cancers mean that there will be a
continuing, perhaps increasing, demand for products predicated on a
remaining lifespan that is neither very short nor indefinitely long. The
Regulations should not stifle innovation, but rather should permit
financial institutions to take consumer medical information into account
in making credit decisions when the product about which the decision is
being made is available only to a class of consumers defined by some
aspect of their medical information.
Declining to Consider Medical Information
By the same token, the Agencies understand, and the MBA readily
acknowledges, that in the vast majority of instances creditors do not
want to obtain information about consumers’ medical histories. Such
information is generally irrelevant to creditors’ decisions and is
nothing more than a burden on the credit decision-maker, even if the
consumer is convinced of its relevance. The Proposal partially reflects
this dynamic with its rule of construction that a financial institution
receiving consumer medical
information unsolicited does not “obtain” medical information. See §
__.30(b). But it would solidify this understanding if the Regulations
made clear that a creditor is under no obligation under FCRA to take
medical information into account. Although the new FCRA provisions
restrict the use of medical information, they do not require its use.
Coded Information
The Agencies request comment on how lenders should be allowed to
consider information that has been “coded” by the consumer reporting
agency (“CRA”) to remove the identity of any medical service provider
mentioned in the consumer report, as well as any specific information
concerning any medical product, service, or device provided by that
service provider. MBA supports the first of the three options suggested
for accomplishing this goal — treating coded information as falling
outside the definition of
“medical information.”
The apparent purpose of requiring CRAs to code medical information
before reporting it (unless the consumer gives written consent to report
uncoded information) is to allow creditors to continue to use
information about consumers’ payment records with medical providers in
the same way that they use other credit history information, without
compromising individuals’ medical privacy. Therefore, we believe that
FCRA, as amended, can be fairly interpreted as excluding coded
information from the definition of “medical information.”
An interpretation that coded information is “medical information,”
but that a creditor may use it under an exception, could require lenders
that do not consider an individual’s health status or history to create
special procedures to ensure that their use, or otherwise permissible
sharing, of the information falls within the exception. Since the
purpose of the coding procedure is to strip the information of any
significant healthrelated content, little purpose would be served by
requiring lenders to incur additional
expense in identifying relevant exceptions (or, alternatively,
disregarding coded information for fear of violating the law).
Using and Sharing Pre-Effective Date Information
Along the same lines, it is important that the Regulations make clear
that they apply only to information that is both collected after the
implementation date and is used in connection with a credit decision
made after the implementation date. Otherwise, lenders will have to
conduct their own “scrub” of credit report information in their files as
of the effective date, to make sure that none of the information is
subject to the restrictions on use and sharing of “medical information”
in the new rules. Clarity on the effective date is particularly
important for lenders that maintain common databases
under the existing affiliate information-sharing or “joint user”
exceptions, since they could otherwise be viewed as impermissibly
sharing “medical information.”
Effective Date
The Agencies seek comment on whether they should set an effective
date for the Regulations (and for the underlying restrictions on
obtaining and using medical information) other than the default date
specified by the statute, which is 90 days after the final rule is
issued. Because of the systems challenges that mortgage lenders face in
implementing these and the many other FACTA regulations, 90 days is not
an adequate period to come into compliance. Furthermore, the requirement
for CRAs to
code medical information does not go into effect until March 4, 2005. As
noted, the coding requirement should greatly reduce the burden of
dealing with medical information for many lenders. Finally, although the
Federal Trade Commission (“FTC”) has the authority to create exceptions
like those proposed in the Regulations, it is not required to do so and
has not yet issued a proposal. We assume that the FTC will eventually
issue a rule providing similar exceptions to the medical-information
requirements for lenders under its jurisdiction. If the Agencies’
Regulations make the restrictions on obtaining and using information
effective before the FTC exceptions apply, then institutions under FTC
jurisdiction will be placed at a severe operational and competitive
disadvantage.
For these reasons, we urge the Agencies to set an effective date for
these provisions of the latest of (1) March 4, 2005; (2) six months
after the final Regulations are issued; or (3) six months after the FTC
issues a similar regulation.
Any questions about the foregoing should be
addressed to Mary Jo Sullivan at 202-557-2859.
Thank you for your consideration.
Sincerely,
Kurt Pfotenhauer
Senior Vice President
Government Affairs
Mortgage Bankers Association
1919 Pennsylvania
Washington, DC 20006
