The credit reporting system is an integral part of the fabric of consumer credit in the United States. Credit scores, derived from data provided to credit reporting agencies, from creditors of all shapes and sizes, dictate whether a consumer can obtain credit and how much that credit will cost. As such, there is a need for the data furnished to be accurate and complete to ensure the integrity of the system. Enter a global pandemic due to the new coronavirus (“COVID-19”) with businesses shuttered around the country. People have been furloughed, laid off, or otherwise left jobless and unable to pay their bills, circumstances that threaten to cripple the US credit market.
Congress acted by passing the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or the “Act”), billed in part as a comprehensive COVID-19 relief plan. Recognizing the importance of consumer credit reporting, the CARES Act included provisions which attempt to protect consumer credit if the consumer enters into an “accommodation” with a furnisher of consumer credit data. An “accommodation” is an agreement to defer one or more payments, make partial payments, forebear delinquent amounts, modify a loan or contract, or receive any other assistance or relief granted by a creditor, to a consumer affected by COVID-19 during the “covered period.” The “covered period” is the period beginning on January 31, 2020 and ending 120 days after the national emergency terminates. Different reporting requirements apply, depending on whether the consumer’s credit obligation is current or delinquent when the furnisher makes an accommodation.
For example, if a furnisher makes an accommodation with respect to one or more payments on a consumer’s credit obligation or account when it is not delinquent, and the consumer makes the payments or is not required to make one or more payments under the accommodation, then the furnisher must report the obligation as “current.” When reporting an account as “current,” a furnisher should consider all of the trade line information they furnish reflecting an account as current or delinquent and cannot simply use a special comment code to report a declared disaster or forbearance. If the obligation or account is delinquent before the accommodation (but not yet charged-off), the furnisher must maintain the delinquent status while the accommodation is in effect and, if the consumer brings the obligation or account current during the accommodation period, the furnisher must report it as current.
The Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) provided the following example in its guidance: “If at the time of the accommodation the furnisher was reporting the consumer as 30 days past due, during the accommodation the furnisher may not report the account as 60 days past due. If during the accommodation the consumer brings the credit obligation or account current, the furnisher must report the credit obligation as current.” Once an accommodation ends, the furnisher must continue to report the time period covered by the accommodation in accordance with the CARES Act protections. For example, the furnisher may not report a consumer who they reported as current during the accommodation as delinquent post-accommodation if payments were made in accordance with the accommodation plan.
Furnishers, who may already be facing operational challenges as a result of remote work and loss of staffing, could face challenges when trying to comply with the Act. The CFPB responded with a policy statement and Frequently Asked Questions guide, indicating it would provide some “flexibility” in its enforcement approach to help furnishers manage these challenges. However, the CFPB warned furnishers that the Bureau still has an expectation of compliance, and that it would be appropriate to evaluate individually the circumstances of each furnisher and its “good faith” efforts to comply.
All of this regulation and guidance leads to a fundamental question, namely whether the CARES Act provisions on credit reporting truly protects the consumer’s credit, and, perhaps more importantly, the consumer’s credit score. Without question, this CARES Act provision should protect a consumer from having a delinquency show on their credit report when they enter into an accommodation. However, the consumer credit report may use a “special comment code,” which would show the debt being in an accommodation plan, such as payment deferral or forbearance. While the CFPB has emphasized that such a code may not fully satisfy the requirement, as the furnisher should look at other data fields to ensure they show the debt as “current,” there is no restriction from inputting an accurate description of the debtor’s current position with the loan. Such a description may in fact be required in order to fully and accurately show the status of the obligation. These descriptions can, and often will, lead to a decrease in a consumer’s credit score. Even if a decrease does not occur, the coding itself could lead to a consumer’s lack of ability to obtain credit, as some creditors will require a number of payments post forbearance, before they will lend new credit.
So, what should a furnisher do? The furnisher must balance their operational challenges, their staffing, and their desire to provide the best customer service they can with the enhanced reporting requirements required by the CARES Act. The furnisher should establish policies and procedures to ensure accommodation plans are appropriately flagged and thus reported correctly. The furnisher should establish a plan to answer a consumer who asks, “Will this accommodation hurt my credit?” so as to not create a false impression of the overall impact on a consumer’s credit health. Finally, the furnisher should document the steps they have taken to comply, and, just as importantly, the operational or technical roadblocks that could prevent full and absolute compliance. These steps will help furnishers mitigate the risks that may result, including litigation and regulatory action.