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CFPB bans medical debt in credit reporting decisions
On June 11, the CFPB released a proposed rule to ban obtaining or using medical information for credit eligibility determinations. Specifically, the proposed rule would amend the FCRA to remove the medical financial information exception and limit credit reporting of medical debt.
In 2003, Congress amended the FCRA to restrict creditors’ use of medical information for purposes of making credit eligibility determinations, and it authorized the banking agencies to issue exemptions from the restriction through rulemaking. In 2005, the banking agencies issued a regulatory exception to permit creditors to obtain and use consumers’ medical financial information when making credit eligibility determinations if certain conditions were met. The CFPB’s proposed rule would roll back the 2005 exception, in addition to other changes. First, the proposed rule would remove the financial information exception that permits creditors to obtain and use medical and financial information (including regarding medical debt) in connection with credit eligibility decisions (with certain limited exceptions). Second, the proposed rule would limit consumer reporting agencies’ ability to furnish medical debt information to creditors.
CFPB Director Rohit Chopra noted in prepared remarks that the proposed rule would eliminate the “loophole” that allowed lenders to access and use medical debt information, which he argued would align regulations with congressional intent. A fact sheet from the White House, published on behalf of Vice President Kamala Harris and Director Chopra, stated that this action builds on prior efforts by the Biden-Harris administration to reduce the burden of medical debt.
As previously covered by InfoBytes, the Bureau announced this initiative in September 2023. The CFPB signaled its interest in proposing this rule when it threw its support behind Connecticut SB 395, which bans the inclusion of medical debt in consumer reports (covered by InfoBytes here). The proposed rule would go into effect 60 days following publication in the Federal Register.
Chopra remarks on how less credit reporting competition may lead to higher mortgage costs
On May 20, CFPB Director, Rohit Chopra, delivered a speech at a trade association event addressing the rising costs in the mortgage lending industry, which may be due to limited competition in the credit reporting sector. According to Chopra, the mortgage industry was dominated by three major conglomerates, and credit scores were provided by a single corporation. These entities have significantly increased the price for credit reports and credit scores in recent years, with increases reaching as high as 400 percent since 2022. These price hikes can increase a lender’s origination fees or interest rates and have impacted both lenders, especially small lenders, and homebuyers disproportionately.
Chopra added how lenders require credit reports and credit scores for loan origination and adhere to secondary market requirements, which would necessitate purchasing these reports multiple times, like for joint applications. Director Chopra also noted that price increases were no longer tied to volume discounts and instead were now based on a flat fee pricing model, exacerbating costs for lenders. Additionally, the CFPB questioned the accuracy of credit reports, with the reporting industry profiting from expedited correction services known as a “rapid rescore.”
Director Chopra emphasized the need for regulatory intervention to address these issues within the mortgage industry. Chopra stated that “limiting chokepoints” was critical. As a result, the CFPB was examining these rising costs and considering regulatory measures to enhance competition and affordability. The Bureau was also promoting “open banking,” which would allow consumers to share their financial data directly with lenders to potentially reduce reliance on traditional credit reports and credit scores.