Nothing seems as simple as it was a few short months ago. Managing work-life balance, buying hand sanitizer, or suddenly trying to figure out the optimal WIFI location to work from home—while the rest of the family is simultaneously using it for work and remote learning activities—is tremendously challenging. In the midst of this chaos, compliance officers must simultaneously focus on tracking, analyzing, and implementing rapidly changing regulatory guidance. One example of this impacts credit reporting.
On Friday, March 27th, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”; Pub. L. No. 116-136) was signed into law. Much of the focus of the CARES Act has been on the funding provided to assist individuals and small businesses during the negative economic impact of the pandemic, as well as assisting homeowners to keep their homes and to protect their credit.
Section 4021 of the CARES Act, Credit Protections During COVID-19, temporarily amends Section 623(a)(1) of the Fair Credit Reporting Act (“FCRA”). Under this temporary amendment, an institution that makes an accommodation for one or more payments on a consumer credit obligation must report the obligation or account as current, provided that the account was current at the time of the request. While at first glance this does not seem complicated, it is likely that institutions will experience some logistical challenges in complying with the temporary change.
One challenge is likely to be in understanding the applicability of the reporting requirements based on the timing of the accommodation. Section 4021 defines an accommodation as including “an agreement to defer one 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) pandemic during the covered period.” The covered period is defined as the period beginning on January 31, 2020 and ending on the later of:
- 120 days after the enactment of the subparagraph; or
- 120 days after the date on which the national emergency concerning the COVID-19 outbreak—declared by the President on March 13, 2020 under the National Emergencies Act—terminates.
Although the date that is 120 days after the date of enactment of the subparagraph is known, the COVID-19 related national emergency termination date is not currently known. With a yet undefined end date for the temporary reporting change, institutions will need to implement temporary adjustments to their FCRA policies and procedures and will need to closely monitor for any updates that can establish the end of the temporary period. A record of policy and procedure changes should also be maintained to ensure that changes can be communicated both internally and to examiners as needed. Additionally, while the CARES Act was not signed into law until late March, the covered period for this reporting change begins retroactively on January 31, 2020.
Given the retroactively applied requirement, an added challenge will be identifying those who may have made an accommodation request between January 31 and the passage of the CARES Act to ensure that those accounts are appropriately reported to credit bureaus. In order to manage the risk of non-compliance, institutions will need to implement testing or other added quality control measures to validate that accounts granted an accommodation during this period are being reported in a consistent, compliant manner. This could require a full review of all accommodation requests received during this time in order to facilitate any necessary adjustments in reporting.
Many repetitive tasks in institutions are now managed via automation, and that generally includes credit reporting. While automation is often an effective regulatory control reducing the potential for human error at a transactional level, it could in this case be the cause of a systemic failure if not managed and monitored properly.
At a minimum, institutions will need to update systems to report an account’s default status in compliance with the temporary change. Those accounts that were current when requesting the accommodation must be reported as current during the accommodation period, whereas those that were in default prior to the accommodation request should be reported as in default. Should the consumer bring the account current during the period, the account should be reported as current. Institutions will need to test updates to credit reporting systems automation to validate that the changes result in accurately reporting the account status. This should include validation of changes from any vendors utilized in the credit reporting process.
It also is important to note that changes in automated processes may not capture those accommodation requests made prior to the changes. Manual identification and updates may be required on at least some accounts.
As a general matter, credit reporters should have procedures in place for responding to credit disputes in a timely, compliant manner. The rules governing the credit dispute process are not affected by the temporary amendment and should be consistently followed. Disputes during this time could also serve as a warning system or a way to catch and correct accounts that were erroneously reported in a default status.
Increases in the volume of credit disputes should be closely monitored and thoroughly understood. If errors in credit reporting are discovered, a root cause analysis should be conducted to determine any gap in processes and to appropriately establish remediation and resolution. This should include an effort on the part of the institution to pro-actively locate other impacted accounts and take necessary steps for remediation.
The CARES Act is intended to assist both consumers and businesses alike with the anticipated long-term economic impacts of COVID-19. Properly reporting credit data can play a critical role in mitigating the impact for numerous borrowers. Here, well intentioned lenders who do not account in a timely manner for Section 4021’s impact during the temporary period could inappropriately report deferrals or payment delinquencies in a way that is inconsistent with the Act’s intent to mitigate potential short-term adverse consequences to lenders during the pandemic. Compliance officers should address compliance with this temporary amendment and closely monitor credit reporting to ensure that consumers do not suffer unreasonable long-term impacts from reduced credit scores.
DISCLAIMER: The information and views set forth in this Wolters Kluwer Financial Services’ communication are general in nature and are not intended as legal or professional advice. Although based on the law and information available as of the date of publication, general assumptions have been made by Wolters Kluwer Financial Services that may not take into account potentially important considerations to specific businesses. Therefore, the views and information presented in this Wolters Kluwer Financial Services’ communication may not be appropriate for you. Readers must also independently analyze and consider the consequences of subsequent developments and/or other events. Readers must always make their own determinations in light of their specific circumstances.
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