Does anyone have any suggestions on how to handle Medical Collections in the Underwriting Processes? We are considering disregarding Medical Collections under $5000 and for collections totaling more than $5000, then the loan officer will calculate 1/60th (5 year payout) of the amount in determining monthly debt service for the DTI Calculation. We want to avoid any Fair Lending issues, any other suggestions?

I don't understand. How is a medical collections a fair lending issue?

For safety and soundness reasons, shouldn't you treat all collections the same? Why do you care if it's a medical or non-medical collection?

You may want to review the following.

https://www.bankersonline.com/regulations/12-1022-030

You will have potential issues treating medical collections differently than you do other collections. Are you going to discount all collections less than $5,000?

There may be good reason to treat medical and nonmedical debts differently. The CFPB study on debt collection found that medical debt - particularly paid medical collections - are less indicative of credit risk than other debts.

https://files.consumerfinance.gov/f/2014...collections.pdf

https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf


The National Consumer Assistance Plan, created by the settlements between the 3 large credit bureaus and 31 state attorneys general mandates treating medical debt differently for the purposes of credit reporting. Under the settlement, medical debts must be at least 180 days old before being added to a consumer credit report.

http://www.ag.ny.gov/pdfs/CRA%20Agreement%20Fully%20Executed%203.8.15.pdf

Depending on which credit scoring model you are using, vended scores may also treat medical debt differently.

I didn't take the time to fully read the studies but do any of them supersede the regulation?

Aa far as I know if you choose to use medical collections in your credit decision they must be treated the same as any other collection in accordance with 1022.30.

Good discussion, because we ignore aggregate medical collections less than a certain dollar amount set by our credit policy. I think that is consistent with 1022.30. In reading through the section, I don't see where it says that they must be treated the same, they just can't be treated less favorably.

(ii) The creditor uses the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction;

"(ii) The creditor uses the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction;"

I was told once, but I'm not sure if they mean that solely for the credit part, or additionally for extrapolating thoughts about the person's health. As i,n" hmmm, Joe was in there for cancer, I'm not sure if we should make the loan because he may not be cured."

The CFPB studies and informal guidance are not inconsistent with the regulation, as there is no regulatory requirement to use medical debt in the same way non-medical debt is used. The requirement is that the use of medical debt shall not be less favorable than the use of non-medical debts.

From 12 CFR 1022.30:

(d) Financial information exception for obtaining and using medical information—(1) 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 so long as:

(i) The information is the type of information 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 proceeds;

(ii) The creditor uses the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction; and

(iii) 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.