Credit Reporting During COVID-19: Loan Accommodations, the CARES Act and Amended FCRA Requirements

Sean Kulczycki, Senior Director Risk and Compliance
Steven Stachowicz, Managing Director Risk and Compliance

Imagine a scenario whereby your livelihood is upended by the COVID-19 pandemic. You are a retail store clerk, a flight attendant, a bartender, an owner of a “non-essential” small business, a sales representative, or any of the 10 million people who have recently filed for first-time unemployment since mid-March 2020.  You have a mortgage and call your mortgage company to work out a temporary payment deferral or loan modification. Many months or years from now, after the current health crisis subsides and you return to a “new normal,” you apply for credit and find your credit score is low. Your temporary deferral, it turns out, was reported by your mortgage company as a delinquency even though your mortgage company agreed to it, you adhered to its terms, and you are now in good standing as a borrower. 

In this unprecedented time, millions of households are experiencing financial difficulty. This has led many consumers to explore options related to relief on mortgages and other loans as they make difficult decisions on how to balance those obligations with paying for day-to-day necessities. As consumers reach out to financial institutions and request short-term accommodations, Congress recognized that these arrangements could have a long-lasting impact on these consumers in the form of negative information furnished about their creditworthiness by the very financial institutions assisting them in the short term.   

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which was signed into law on March 27, 2020, addresses the above scenario by amending the Fair Credit Reporting Act (FCRA). The CARES Act requires that creditors who agree to allow a borrower to defer one or more loan payments, make a partial payment, forbear any delinquent amounts, or modify a loan or contract, or agree to any other assistance or relief granted to a consumer who is affected by the COVID–19 pandemic (referred to as an “accommodation”) must:

  • Report the credit obligation as current, or
  • If the credit obligation was delinquent before the accommodation was made, maintain the same delinquent status reported before the accommodation was made but update the reporting to be current if the consumer subsequently brings the credit obligation or account current.

The requirements apply to accommodations made to credit obligations for borrowers impacted by the COVID-19 situation between January 31, 2020 and 120 days after the date in which the national emergency declaration made by the president on March 13, 2020 terminates. It does not apply to credit obligations that have been charged-off. 

This past week, the Consumer Financial Protection Bureau (CFPB) issued a policy statement to highlight these data furnishing requirements under the CARES Act and amended FCRA. The CFPB specifically states that it supports furnishers’ voluntary efforts to provide payment accommodations to consumers impacted by COVID-19, and it does not intend to cite in subsequent supervisory examinations or take enforcement actions specifically against those furnishers “who furnish information to consumer reporting agencies that accurately reflects the payment relief measures they are employing.”

The CFPB further encourages creditors that regularly furnish credit report information to the consumer reporting agencies to continue doing so during the current health crisis as accurate information reported to consumer reporting agencies is beneficial to consumers and those who use consumer reports. 

In its Policy Statement, the CFPB also acknowledges that the current health crisis has disrupted and may continue to disrupt the operational capabilities of data furnishers and the consumer reporting agencies.  Based upon factors such as staffing and lack of access to necessary information, the CFPB acknowledges that data furnishers and consumer reporting agencies may be challenged to respond to consumer disputes of previously-furnished consumer report information within the timeframes prescribed under the FCRA (as implemented by the CFPB’s Regulation V). The CFPB states that, when examining for compliance with the FCRA, it will not cite as an issue (or bring an enforcement action against an institution) instances in which the institution does not investigate and respond to a consumer dispute within the required timeframes if the institution, based on its individual operational circumstances, makes a “good faith effort” to do so.

Lastly, the CFPB reminds data furnishers and consumer reporting agencies that they are not required to investigate credit reporting disputes that are submitted to them by credit report organizations or that are reasonably determined by the institution  to be “frivolous or irrelevant,” in accordance with FCRA and Regulation V. 

The Protiviti Perspective

As financial institutions implement programs and policies to respond to customers’ requests and legal and regulatory obligations in the CARES Act and otherwise, financial institutions must also ensure that these programs and policies address the manner in which they furnish consumer report information. As part of their consumer reporting programs implemented to comply with the CFPB’s Regulation V, program managers, together with their business, compliance and risk partners, should:

  • Assess the “business as usual” consumer reporting program functionality and technical compliance.
  • Understand and document operational processes related to forbearances and other relief programs, whether existing or newly developed in response to the CARES Act and current health crisis. Credit reporting must be included as a critical component of the change management process. 
  • Confirm on an ongoing basis that operational processes have not and do not result in unintended and incorrect negative reporting to the consumer reporting agencies about the institution’s borrowers during and after this health crisis. This includes evaluating the data submission processes and conducting targeted monitoring of relief programs in relation to credit reporting, understanding both the technical reporting and the operational business processes.
  • Ensure the continuity of current consumer reporting processes. 
  • Evaluate the impact of operational challenges on responding timely to consumer disputes. 

Consumer reporting agencies themselves may want to consider adding certain monitoring controls over the accuracy of the data reported, including monitoring the accuracy of loans reported by financial institutions as having been modified but also delinquent. While consumer reporting agencies are limited in terms of verifying the accuracy of information furnished to them, these agencies may seek to establish controls, such as monitoring, to identify potentially inaccurate or incomplete data and work with data furnishers to resolve such instances noted.

During this time, there is a clear need to work with consumers affected by the health crisis, as encouraged by the federal and state banking regulators and the CFPB. No doubt, financial institutions face significant operational challenges, including concerns about the safety and health of their own employees, disruptions caused by many employees working remotely, as well as a rapid increase in the receipt of consumer requests for assistance. Strong risk management during this health crisis necessitates an agile yet disciplined change management approach, and timely monitoring and oversight for operational and regulatory compliance. No financial institution, in its attempt to balance the needs of its workforce and serve its customers in this time of need, wants to be found later to have inadvertently harmed them through an overlooked process.  

Jennifer Peddicord, a Senior Manager with Protiviti’s Risk and Compliance practice, contributed to this content.

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