New Pandemic Rules of the Road for Credit Information Furnishers
The Coronavirus Aid, Relief, and Economic Security (CARES) Act imposes new responsibilities on furnishers under the Fair Credit Reporting Act (FCRA), without relieving them of their existing duties thereunder. While the Consumer Financial Protection Bureau’s (CFPB) April 1, 2020 policy statement promises relief for furnishers from related supervisory and enforcement actions, it has no impact on private litigants and state authorities.
In summary, furnishers cannot report a borrower in a less creditworthy status as a result of the borrower’s acceptance of an “accommodation” given to a borrower under the CARES Act. “Accommodation” is defined broadly to include “an agreement to defer 1 or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or any other assistance or relief granted to a consumer who is affected by the coronavirus disease 2019 (COVID–19).” Accordingly, institutions must coordinate their COVID-19 relief programs with their credit reporting business units to ensure compliance.
Further, while the CFPB states that it would not strictly enforce deadlines for processing consumer disputes, existing deadlines pertaining to disputes transmitted through credit bureaus (but not those furnishers receive directly from consumers) remain enforceable by private litigants and state authorities. Furnishers facing manpower and operational challenges during the pandemic thus still must maintain sufficient resources for prompt handling of consumer disputes received via credit bureaus.
Accommodations: The CARES Act amends 28 U.S.C. § 1681s-2 (governing duties of credit data furnishers) to require that, between January 1 and 120 days after the end of the federal COVID-19 state of emergency, “accommodations” made to a consumer “affected” by COVID-19 shall not result in reporting the consumer in a more derogatory fashion than he was prior to the accommodation. For example:
- If a consumer was current before the crisis and is allowed three months of reduced payments due to the crisis, then the consumer must be reported as current if he makes the reduced payments.
- If he was 60 days late before the crisis and is given two months of deferred payment without extra interest or fees, then he must be reported as no more than 60 days late during the accommodation period.
In essence, the CARES Act freezes the credit reporting status in its more favorable pre-accommodation position. (Of course, if a consumer who was late brings himself current, then the account should be updated to the more favorable current status.) Two exceptions exist: First, charged-off accounts still may be reported as charged-off, and the status of delinquent accounts that become charged-off may be updated to reflect the charged-off status. Second, if an accommodation involves reduced payments (rather than a payment holiday), and the consumer fails to pay the reduced payment as agreed, then the credit reporting may reflect a more derogatory status.
Although not addressed in the statute, the balance should be reported to reflect payments that are actually made pursuant to an accommodation. The CARES Act is less clear as to whether the monthly payment amount should be changed to reflect the terms of any accommodation, or whether the contractual monthly payment obligation should be reported. The CFPB states in its recent policy statement that “it does not intend to cite in examinations or take enforcement actions against those who furnish information to consumer reporting agencies that accurately reflects the payment relief measures they are employing.” This statement suggests that the reduced monthly payment requirement may be reported while that accommodation is in effect. Because the CFPB’s statement is only non-binding guidance, in the event of a consumer dispute, furnishers should strongly consider reporting the monthly payment amount as requested by the consumer, if there is any basis for the consumer’s desired reporting. The CFPB’s statement also suggests that, even if an account subject to an accommodation must be marked “current” per CARES Act requirements, it may be permissible to include a remark that the account is subject to a payment accommodation. To minimize litigation risk, however, strongly consider removing the remark if a consumer disputes its addition.
Credit reporting disputes: The present crisis likely imposes operational challenges with respect to processing legitimate consumer credit reporting disputes. The timetable to respond to both direct disputes and indirect disputes is set forth in 28 U.S.C. § 1681s-2(a)(8)(E)(iii) & (b)(2), which in turn incorporate the timetables of 28 U.S.C. § 1681i(a)(1) and requires the credit bureau to complete its reinvestigation of a credit dispute within 30 days. Thus, for direct disputes, the furnisher must complete its dispute processing and respond to the consumer (and make any required updates) within 30 days.
For indirect disputes, the time for the furnisher to complete its dispute processing and respond to the credit bureau will be less than 30 days, and will depend on how quickly the bureau transmitted notice of the dispute. (The FCRA mandates that the bureau transmit the dispute within five days of receipt.) The timetable for processing indirect disputes may be extended by up to 15 days by the credit bureau, but only if the consumer provides additional information bearing on the dispute during the initial 30 days. See 28 U.S.C. § 1681i(a)(1)(B). Neither the statute nor the CFPB’s regulation governing direct disputes, 12 C.F.R. § 1022.43(e)(3), permit any extension of time for processing direct disputes.
Notwithstanding that apparent inflexibility, CFPB’s recent policy statement offers some relief. If, due to the COVID-19 crisis, furnishers of credit data require more than 30 days to process disputes, the CFPB does not intend to cite in an examination or bring an enforcement action against firms who exceed the deadlines to investigate such disputes as long as they make good faith efforts during the pandemic to do so as quickly as possible. The CFPB also reminds furnishers of their statutory right not to investigate disputes submitted by credit repair organizations as well as to determine certain disputes to be “frivolous or irrelevant.” See 28 U.S.C. § 1681s-2(a)(8)(F) & (G).
Consumer advocacy groups have already criticized CFPB for this policy guidance, so care must be taken to handle indirect disputes within statutory requirements, to minimize the risk of private litigation. Additionally, the CFPB’s guidance is not binding on state attorneys general, who have independent enforcement power under the FCRA.
The recent CFPB policy guidance is one of several measures taken recently by CFPB to provide relief to financial institutions during the COVID-19 emergency. Other helpful CFPB measures include relaxing supervisory exams and suspending various reporting requirements for prepaid cards, credit cards and under the Home Mortgage Disclosure Act.
We would be happy to discuss the above or any other consumer financial services issues further. Please stay healthy and safe.
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