Credit Reporting During COVID-19: CFPB Issues Critical New FCRA Guidance

COVID-19 Update

Furnishers and consumer reporting agencies (CRAs) have just received important new guidance on credit reporting during the COVID-19 pandemic. Here are the key takeaways.

What happened

Under the recently enacted CARES Act, lenders are obligated to report to credit bureaus that consumers are current on their loans if consumers have sought relief from their lenders due to the pandemic; were “current,” as that term is used in the Act, when they sought relief; and comply with the modified credit terms. We have already reported on various aspects of the CARES Act provisions, and those articles are available at Manatt’s COVID-19 page.

On April 1, the Consumer Financial Protection Bureau (CFPB) issued a Fair Credit Reporting Act (FCRA) policy statement that reiterates that lenders and CRAs are obligated to follow the CARES Act provisions. Among other requirements, the CARES Act effectively obligates lenders that engage in such reporting to report to CRAs that consumers are current on their loans where such consumers have sought relief from their lenders due to the pandemic.

Section 4201 of the CARES Act provides that “if a furnisher makes an accommodation with respect to one or more payments on a credit obligation or account of a consumer and the consumer makes the payments or is not required to make one or more payments pursuant to the accommodation, the furnisher shall (I) report the credit obligation or account as current; or (II) if the credit obligation or account was delinquent before the accommodation—(aa) maintain the delinquent status during the period in which the accommodation is in effect; and (bb) if the consumer brings the credit obligation or account current during the period described in item (aa), report the credit obligation or account as current.” In addition, Section 3513 of the CARES Act addresses the furnishing of certain student loans for which payments are suspended.

Noting the CARES Act provisions, the CFPB policy statement adds that “the continuation of reporting such accurate payment information produces substantial benefits for consumers, users of consumer reports, and the economy as a whole.”

This is what you need to know now about the policy statement:

1. Furnishing Information on COVID-19-Affected Consumers. While companies generally are not legally obligated to furnish information to consumer reporting agencies, the CFPB now encourages them to continue furnishing information. The CFPB expects furnishers to comply with the CARES Act provision that generally requires furnishers to report as current certain credit obligations for which furnishers make payment accommodations to consumers affected by COVID-19 who have sought such accommodations from their lenders and were current when seeking relief. If the furnisher has offered and the consumer has received payment flexibility, including allowing consumers to defer or skip payments, the furnisher must avoid the reporting of delinquencies resulting from the effects of COVID-19. Further, the CFPB indicates it will not 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.

So what does the CFPB intend here? Unstated here, of course, is that the failure by COVID-19-affected consumers to honor the relaxed payment terms may subject them to accurate reporting in that regard. Furnishers are encouraged to craft policies that balance regulatory empathy with the mandatory provisions of the CARES Act that require the accurate reporting of this information.

2. Relaxed Approach on Disputes. The FCRA generally requires that CRAs and furnishers investigate consumer disputes within 30 days of receipt of the dispute, with extensions to 45 days where the consumer provides additional information within the 30-day period. Recognizing the significant operational disruptions that COVID-19 has imposed on CRAs and furnishers in investigating disputes, the CFPB notes that it will consider a CRA’s or furnisher’s individual circumstances and does not intend to cite in an examination or bring an enforcement action against a consumer reporting agency or furnisher making good faith efforts to investigate disputes as quickly as possible, even if dispute investigations take longer than the statutory time frame. Further, the CFPB reminds furnishers and CRAs that they may take advantage of statutory and regulatory provisions that eliminate the obligation to investigate disputes submitted by credit repair organizations and disputes they reasonably determine to be frivolous or irrelevant. Likewise, the CFPB will consider the significant current constraints on the furnisher and CRA time, information, and other resources in assessing whether such a determination is reasonable.

On this aspect of the policy statement, the CFPB is effectively saying “relax, we just need you to try.” A fair warning here: While the CFPB might not enforce these response times, other state regulators may take a different approach.

Why it matters

The CFPB’s policy statement provides flexibility for furnishers and credit bureaus in the time they take to investigate disputes. The CFPB indicates it will not cite in an examination or bring an enforcement action against firms that 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.

In the understandable rush by Congress to pass the CARES Act, certain nontechnical language was employed that may be inconsistent with Metro-2® format. As furnishers and CRAs already know, Metro-2 is the industry-standard format for reporting consumer payment history, and following its requirements helps to ensure consistency, accuracy and compliance with data reporting practices. Before promulgating new practices, furnishers and CRAs should take care to harmonize these requirements with Metro-2. Back on March 9, the Consumer Data Industry Association (CDIA) issued a useful reminder regarding preexisting guidance on credit reporting during the similar circumstances of a natural disaster.

Readers should likewise be aware that the CFPB policy guidance was not subject to Administrative Procedures Act rulemaking processes and is not legally binding (as the CFPB itself notes). In other words, while the guidance is a critical tool in evaluating best practices, furnishers and CRAs should supplement the guidance with whatever additional best practices they already have in place.

Manatt’s consumer financial services team has been advising numerous clients on these issues. If you require assistance, please contact the author or any other member of the team.

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