The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, contains an important amendment to the Fair Credit Reporting Act (“FCRA”) that immediately (and possibly retroactively) affects credit reporting requirements for furnishers of credit information (i.e., creditors that report consumer credit information to credit reporting agencies). Specifically, it imposes a new, temporary credit reporting requirement that, for many furnishers, will constitute a change in ordinary practice. Creditors should examine and understand these new obligations to ensure regulatory compliance and to lessen the risk of possible enforcement actions and litigation. This alert examines the basics of the amendment, its practical effects, issues to look out for, and the possibility of litigation, as well as recent guidance issued by the Consumer Financial Protection Bureau (“CFPB”) and the Consumer Data Industry Association (“CDIA”).

CARES Act Amendment to the FCRA

Section 4021 of the CARES Act modifies 15 U.S.C. § 1681s-2(a)(1) of the FCRA by adding subsection (F). Section 1681s-2(a)(1)(F) provides:

(F) Reporting information during COVID-19 pandemic.

• (i) Definitions. In this subsection:
  • (I) Accommodation. The term “accommodation” includes 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 during the covered period.
  • (II) Covered period. The term “covered period” means the period beginning on January 31, 2020 and ending on the later of—
  • (aa) 120 days after the date of enactment of this subparagraph [enacted March 27, 2020]; or
  • (bb) 120 days after the date on which the national emergency concerning the novel coronavirus disease (COVID-19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates.
• (ii) Reporting. Except as provided in clause (iii), 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 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.
• (iii) Exception. Clause (ii) shall not apply with respect to a credit obligation or account of a consumer that has been charged-off.

In light of this amendment, furnishers cannot report any specific type of “accommodation” reached with a consumer.  Rather, for consumers whose accounts were current, and where they have been given an accommodation and have complied with the same, their account should continue to be reported as current. For consumers whose accounts were delinquent, and where they have been given an accommodation and have complied with the same, their account should still be reported as delinquent, unless they make it current.

The CARES Act defines “accommodation” as “an agreement to defer 1 or more payments, make partial payments, 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.” As discussed below, this would include virtually any type of change made to the terms of the contractual payments, including for consumers who are not in default.

The relevant time period for the new reporting requirement is January 31, 2020 until the later of 120 days after either (1) the date the CARES Act was enacted (March 27, 2020) or (2) the date when the national emergency is terminated. Therefore, creditors should assume that this temporary reporting requirement will be in effect for most, if not all, of 2020.

Essentially, the intent of the amendment appears to be to ensure that consumers’ credit reporting is the same or better during the pandemic and, less directly, to encourage “accommodations” for consumers who are impacted by the pandemic without any adverse credit impacts.

Understanding the Changes

In addition to the basics set forth above, here are some key issues to consider:

• Effective Date. The CARES Act amendment requires the change in credit reporting for “accommodations” given during the “covered period.” In turn, it defines “covered period” as dating back to January 31, 2020. It is unclear whether the amendment could or actually does apply retroactively to credit reporting for accommodations made before March 27th. However, it would be prudent for furnishers to assume that it does or could apply retroactively, and thus furnishers should examine credit reporting for accommodations made on or after January 31, 2020 to ensure compliance.
• “Accommodations.” The amendment makes clear that the temporary reporting requirement will apply to almost every type of change to a credit obligation, including deferrals, forbearances, and modifications. What it does not make clear is the required nexus between the change and the COVID-19 pandemic such to render a change an “accommodation” under the amendment. The amendment defines accommodation as an “agreement” granted “to a consumer who is affected by the coronavirus disease 2019.” Thus, it appears to exclude agreements for consumers not so affected, although the line between included and excluded is not exactly defined. However, since the amendment is intended to be consumer protective, the amendment should be read broadly and inclusively by furnishers who are unsure if an agreement constitutes an accommodation under the amendment.
• By Agreement. The amendment only applies to agreements reached by lenders and consumers. This naturally excludes situations where consumers have stopped making their payments in full without an agreement in place, and possibly would exclude any unilateral actions taken by lenders during the pandemic.
• Litigation. Neither the amendment itself, nor the FCRA subsection it amended, provides a private right of action for consumers. However, furnishers are still subject to regulatory enforcement.
• Changes in Reporting Systems, Policies, and Procedures. Furnishers should immediately examine whether the amendment requires changes in their operational systems, or policies and procedures where necessary, in order to comply. For furnishers who use the CDIA’s Metro-2 Credit Reporting Resource Guide (Metro-2), these new, temporary reporting requirements will require changes and adjustments. As mentioned below, the CDIA has issued guidance to help furnishers make these changes.

CFPB Guidance

Following the enactment of the CARES Act, the CFPB issued a “Policy Statement” on April 1, 2020.  As pertinent here, the CFPB indicated that it, while it expected creditors to comply with the CARES Act’s amendment to the FCRA, it would help them accomplish this goal.  The CFPB also indicated that it would take a “flexible supervisory and enforcement approach during this pandemic regarding compliance with the Fair Credit Reporting Act (FCRA) and Regulation V.”  It acknowledged that creditors are also impacted by “operational disruptions” caused by the pandemic, and that it “intends to consider the circumstances that entities face as a result of the COVID-19 pandemic and entities’ good faith efforts to comply with their statutory and regulatory obligations as soon as possible.” Despite these statements, it is best for furnishers to assume that enforcement will remain the same; furnishers should therefore endeavor to comply with applicable requirements, and should also carefully document any “operational disruptions” and their impact on their ability to comply.

The Policy Statement also set forth two key provisions relating to investigation of credit disputes. First, the CFPB stated that, although the FCRA “generally requires that consumer reporting agencies and furnishers investigate disputes within 30 days of receipt of the consumer’s dispute,” the “30-day period may be extended to 45 days if the consumer provides additional information that is relevant to the investigation during the 30-day period.” Any creditor who seeks to use this extended period should document in writing the additional information that it received and considered such to extend the period. Creditors should also aim as much as possible to still satisfy the 30-day window where possible. If “operational disruptions” such as staff reductions or other measures caused by the pandemic may delay or interrupt a creditor’s ability to comply with the timely investigation requirements, the creditor should document those disruptions with specificity and work in good faith to satisfy all deadlines.

Second, the CFPB stated that “furnishers and consumer reporting agencies … 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,” and that it would consider the “significant current constraints on furnisher and consumer reporting agency time, information, and other resources in assessing if such a determination is reasonable.”  Despite this statement, furnishers should be cautious to deem a dispute frivolous or irrelevant.

CDIA Guidance

On April 2, 2020, the CDIA and the credit bureaus issued additional information to assist furnishers in correctly reporting in compliance with the CARES Act. The information is available on the CDIA’s website.

Possible Additional Changes to Credit Reporting

Furnishers should be aware that additional changes to credit reporting are being discussed by members and staff of the Financial Services Committee in the House. One such additional change is a stay on any negative credit reporting for a certain period of time. Although these ideas are far from becoming law, there is impetus for further change that warrants close attention in the coming months.

Conclusion

Furnishers should carefully review the CARES Act’s amendments to the FCRA, the CFPB’s April 1, 2020 Position Statement, and the March 22, 2020 Interagency Statement issued by the CFPB and other agencies[1] to determine the full scope of the new, temporary requirements, and changes that may be needed in operational systems, policies, and procedures to comply with them.

[1] The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, dated March 22, 2020, issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Conference of State Bank Supervisors.