Balancing Credit Reporting and Compassion In Light of COVID-19 (Updated)

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law on March 27, 2020, includes a section enacting an amendment to the Fair Credit Reporting Act (FCRA) requiring furnishers to report as current any consumers who make any payment, or are not required to make payments, pursuant to an accommodation agreement with their lender.

The CARES Act defines "accommodation" as "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) pandemic." Such accommodations, if not already required by state or federallaw, are now being offered across the financial industry by institutions ranging from credit card issuers to mortgage servicers.

This reporting obligation covers a period starting January 31, 2020 through the later of 120 days from (1) the enactment of the furnisher provision (or until July 25, 2020) or (2) the termination of the President's declared national emergency order. For accounts that were delinquent before the accommodation, the lender can maintain the account's delinquent status during the accommodation but must report the account as current if that occurs during the accommodation. These reporting requirements do not apply to accounts that have been charged off.

While many financial institutions have taken steps to provide far-reaching financial relief to consumers impacted by the COVID-19 pandemic, not all consumers will get such relief. This could, in turn, result in an increase in late or missed payments, potentially leading to a dramatic increase in negative impacts to consumer credit scores that could have lasting effects beyond this pandemic.

The realization that this outcome is very possible has led financial institutions to ask themselves, what should we do when our customers experience delinquencies and defaults caused by COVID-19, events that would otherwise be reportable to the credit bureaus? FULL ARTICLE

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