WASHINGTON - Federal regulators proposed exceptions Tuesday to the Fair and Accurate Credit Transactions Act's ban on the use of medical information in credit decisions.
The act expanded medical privacy protections for prospective borrowers and customers but authorized regulators to spell out exceptions and permit certain sharing of medical data among affiliates of banking companies. It set a June 4 deadline for final regulations.
At a board meeting Tuesday, the Federal Deposit Insurance Corp. proposed nearly 10 such exceptions. The Federal Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration are expected to propose nearly identical rules soon.
In most cases the act prevents a consumer reporting agency from releasing medical information about consumers unless they give consent. But it allows regulators to create exceptions that are "necessary and appropriate to protect legitimate operational, transactional, risk, consumer and other needs ... consistent with the intent ... to restrict the use of medical information for inappropriate proposes."
One exception in the proposed rule would allow a creditor to obtain and use medical information that pertains to debts, expenses, income, benefits, collateral, or the purpose of the loan.
It offered this example: A customer applies for a loan and discloses that he or she has a $20,000 debt to a hospital. The bank contacts the hospital and finds out that the most recent loan payment is 90 days past due. The bank could deny the application because of that delinquency but not because the money is owed to a hospital.
Another exception would allow lenders to obtain medical information needed to verify the purpose of a loan sought to finance a medical procedure or purchase medical equipment. Such information could also be obtained to determine whether a customer needs or should be entitled to a power of attorney.
Also, a financial institution could obtain medical information needed to comply with local, state, or federal laws or to prevent or detect fraud.
Though the proposal was unanimously approved, board member John M. Reich said he wanted to convey his "dismay" at how complicated the exceptions appeared. "The language is so complicated that I don't think it passes the plain-English test," he said, adding that he doubted smaller banks would even read the proposal.
