Compliance Q&A: Mortgage Denials and FCRA

Valerie Moss
November 25, 2008 | COMMENTS

Question: Will a credit union violate any law or regulation if it denies a mortgage solely because the applicant has a potentially terminal disease?

Answer: Yes. The credit union will violate Section 604 of the federal Fair Credit Reporting Act (FCRA) by taking into account the member's medical condition in determining credit eligibility.

FCRA Section 604(g) generally prohibits credit unions from obtaining and using medical information when determining members' eligibility (or continued eligibility) for credit.

However, these regulations allow credit unions to obtain and use medical information in this context, so long as they:

• Use this information routinely in making credit eligibility determinations, such as information relating to debts, expenses, income, benefits, assets, collateral, or loan purpose, including the use of loan proceeds
• Use the medical information in a manner that's no less favorable than they would use comparable information that isn't medical information in a credit transaction
• Don't take into account members' physical, mental, or behavioral health, condition or history, treatment, or prognosis as part of any determination

This "financial information exception" allows credit unions to consider members' medical debts and expenses in assessing their ability to repay the debt according to the loan terms. But taking a member's physical condition or prognosis into account in determining the person's eligibility for a mortgage violates FCRA.

Valerie Moss is director of compliance information for the Credit Union National Association. This story first appeared at www.creditunionmagazine.com and is reprinted with permission.