On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) was signed into law and provides several provisions to assist Americans during this time and beyond. Specifically, the CARES Act looks to protect the U.S. consumer and ensure that this pandemic does not also cause additional burdens relating to their ability to obtain credit in the future. The CARES Act lays out for financial service firms and credit reporting data furnishers how to address credit reporting during this period. Institutions that do not comply with new credit reporting regulations risk regulatory and litigation actions resulting from non-compliance with the Fair Credit Reporting Act (FCRA) and the CARES Act.
What should financial institutions and data furnishers that report to the credit reporting agencies be aware of during this pandemic? What steps should these companies take to achieve compliance in this turbulent time?
How Does the CARES Act Impact Credit Reporting?
Section 4021 of the CARES Act adds a new provision to Section 623(a)(1) Fair Credit Reporting Act (FCRA) that provides special instructions for reporting consumer credit information to credit reporting agencies during the coronavirus pandemic. The new provision dictates that when a furnisher provides an “accommodation” (e.g., an agreement to defer one or more payments, allow partial payments, or modify a loan) to a consumer and the consumer makes the payments or is not required to, the furnisher shall:
Report the account as current; or,
If the account was delinquent before the accommodation, maintain the delinquency status and, if the account becomes current during the accommodation period, report the account current.
The covered period for this reporting is January 31, 2020, to the later of:
July 25, 2020, (120 days after the date of enactment of March 27, 2020; or,
120 days after the date on which the national emergency concerning COVID–19 terminates, which is undetermined at this point.
Additionally, Section 3515 of the CARES Act provides temporary relief for federal student loan borrowers whereby “for the purpose of reporting information about the loan to a consumer reporting agency, any payment that has been suspended is treated as if it were a regularly scheduled payment made by a borrower.”
How Does This Impact Data Furnishers?
While at face value, the CARES Act relating to credit reporting is straight-forward, making the necessary changes to current processes, systems, and operations to ensure compliance can be challenging.
The overarching goal of the regulation and guidance directs financial institutions to ensure that borrower credit is not adversely impacted and to report consumers accurately during this difficult period. In order to report accurately, financial institutions and data furnishers should consider the following when implementing these regulations and guidance:
Monitoring the changing state and federal regulations to ensure policies, procedures and processes, and reporting are aligned with regulatory requirements;
Operationalize change and update policies and procedures for new plans and credit reporting approaches for consumers on COVID-19 accommodation plans;
Determine the appropriate reporting approach for your organization based on Consumer Data Industry Association (CDIA) guidance, the Credit Reporting Resource Guide (CRRG) FAQs (specifically, FAQ 44, FAQ 45, FAQ 58, and FAQ 67) and your organization, system capability, and products offered;
Evaluate and update systems to ensure that capture and reporting for COVID-19 accommodation plans can be processed and provide accurate reporting in your Metro 2® file;
Conduct a review of your Metro 2® files to validate that the data in the servicing system for borrowers with COVID-19 accommodations are appropriately reflected in the file and ensure alignment with the CARES Act; and,
Provide training for employees handling disputes.
As the pandemic continues to cause economic uncertainty and contraction in the labor market, financial institutions and data furnishers have an obligation to comply with reporting regulations and guidance, including the CARES Act and FCRA. They also have a responsibility to ensure that unwarranted negative reporting, such as reporting inaccurate delinquency when on an accommodation plan, is not reported to the credit reporting agencies during the accommodation plan.