COVID 19 Credit ReportingApr 272020
In the United States, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was proclaimed on March 27th, 2020. Whilst it may be regarded generally as the stimulus bill as it implements a number of financial relief measures for Americans impacted by the COVID-19 outbreak, it also plays a significant role in guiding those within the credit reporting industry as to how to deal with the adjustments that would have to be made in light of some of the policies that are being implemented by those within the financial and credit market.
The CARES Act has amended Section 1681s-2(a)(1) of the Fair Credit Reporting Act for the United States, modifying it to include the following information:
If a furnisher makes an accommodation with respect to 1 or more payments on a credit obligation or account of a consumer, and the consumer makes the payments or is not required to make 1 or more payments pursuant to the accommodation, the furnisher shall—
I. report the credit obligation or account as current; or
II. if the credit obligations or account was delinquent before the accommodation—
a. maintain the delinquent status during the period in which the accommodation is in effect; and
b. if the consumer brings the credit obligation or account current during the period described in item (a), report the credit obligation or account as current.
Thus, as consumers have the option to obtain what is being termed accommodations, where they can defer on loan payments or receive loan assistance during the pandemic if certain conditions are met, the lender who applies these accommodations must continue to report the account as “current” if they have fulfilled the terms. In the United States, there is a concern that based on the definition of an accommodation under the Act, which is an agreement to defer one or more payments, make partial payments, forebear 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, it may not be an automatic process. It is feared that the word agreement indicates an actual agreement to be in place between a lender and each borrower. However, once an accommodation has been made, the requirement to honour these new reporting procedures will continue for 120 days after the end of the COVID-19 national emergency.
The new interim credit reporting standard implemented by the CARES Act was also backed by the United States Consumer Financial Protection Bureau who urged for lenders compliance. This entity also recognized that in such times there would also be the need for flexibility with lenders and credit bureaus with regards to the time necessary to investigate disputes.
In Canada, the major banks have similarly provided relief programs which allow their clients to defer payments up to several months as a result of the impact of COVID 19. The programs often have included a guarantee that the lender will not report the deferral as missed or late payments to negatively affect a customer’s credit rating.
A similar approach is also being taken in Australia. The Australian Banking Association’s CEO, Anna Bligh said “Australia’s banks are here to support customers who have lost their jobs or significantly lost income because of COVID-19, through initiatives such as offering a six-month deferral on mortgage repayments. Customers in these circumstances should not have to worry about their credit rating as well,” “If a customer is granted a deferral on their mortgage and other credit products because of COVID-19, banks will report customers as not having missed a repayment, provided they were all up to date when granted relief.” However in Australia, as it relates to pre-existing delinquent accounts, it was indicated that for those customers who were already behind but received a deferral due to COVID-19, the banks will not report the repayment history information, but will leave the field blank for the deferral period. Once this period has ended, the bank will determine how to report the repayment history information.
Some have supported the concept of having a notation to indicate that you were affected by a natural or declared disaster and the generation of a disaster code. A disaster code could make a difference if a lender actually reads the full credit report when making a decision, such as in hand-underwriting, says Ed Mierzwinski, senior director, Federal Consumer Program at the U.S. Public Interest Research Group, a consumer advocacy group.
Creditinfo (Barbados) Limited also recognizes the difficult circumstances that many are faced as a result of COVID 19. We too have already begun to contact and survey our subscribers to determine what measures they have in place to accommodate their clients. We will be seeking to implement similar measures to ensure that accommodations made by those within the financial sector are truly that, accommodations, and therefore we will also seek to implement measures and procedures to ensure that such would not affect your standard credit report.