CARES Act Imposes New Rules for Credit Reporting Under FCRA and CFPB Issues Guidance on the New Rules

The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, introduced a sweeping set of new laws and regulations to address the coronavirus (COVID-19) pandemic. Of relevance to consumer lenders, Section 4021 of the CARES Act amends Section 1681s-2 of the FCRA to add a section on how lenders report to consumer reporting agencies “accommodations” extended to consumer borrowers.

Specifically, accommodations must either be reported as current or, if delinquent prior to the accommodation, as delinquent until the delinquency is cured. Importantly, the act is retroactive and applies to accommodations extended to individuals impacted by COVID-19 stretching back to January 31, 2020.

On April 1, 2020, the Consumer Financial Protection Bureau issued guidance advising furnishers, such as lenders, that the Bureau expects them to comply with the new CARES Act rules on credit reporting and will work with furnishers to assist in that effort. Much remains unknown about the new statutes and the implementation of the CFPB’s guidance. We have set forth the text of the statute, as well as an assessment of its plain terms and the CFPB’s guidance below.

I. Scope

First, the new language pertains to “accommodations” which are defined as:

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.

Note that the definition is not exclusive. Rather, it provides examples of payment accommodations to address repayment obligations on existing loans or agreements. Given that the FCRA is a consumer protection statute which should be broadly interpreted, lenders should take an expansive view on whether its efforts to address financial hardship on the part of its borrowers constitute “accommodations” under the new provisions.

II. Required Reporting Requirements

The operative provision of the new statute states:

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.

Under the language, lenders should either report the account as current or, if the account was delinquent prior to the accommodation, report the account as delinquent until the account is brought current.

Complications may arise in instances in which the accommodation seeks to cure delinquencies that existed prior to the accommodation. For example, if the accommodation waives the delinquency upon the effective date of the accommodation, the prudent course of action may be to report the account as current and not report the account as delinquent, as one could under section (ii).

III. Term

The new rules are retroactive to January 31, 2020, and continue until the latter of:

• 120 days after the date of enactment of the CARES Act; or
• 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.

The timing aspect is critical as lenders may, under the plain language of the statute, be arguably required to retroactively apply the reporting treatment to those “accommodations” that were in place as of January 31, 2020, if the borrower on the account was impacted by COVID-19 at that time.

IV. CFPB Guidance

On April 1, 2020, the CFPB issued a Statement on Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act. The guidance advised furnishers that the CFPB expects them to comply with the provisions of the CARES Act discussed above. The CFPB further advised that it does not intend to cite in examinations or bring enforcement actions against furnishers that are accurately reporting the terms of payment relief reached with consumers. How this part of the guidance will be interpreted is unclear as it seems to suggest that there are reporting statements other than those set forth in the CARES Act for COVID-19 payment accommodations that the CFPB would find acceptable; a position seemingly at odds with the CFPB’s statement requiring compliance with the CARES Act.

Finally, and not related to the CARES Act, the CFPB advised that it will consider a consumer reporting agency’s or furnisher’s circumstances when evaluating compliance with the FCRA’s dispute investigation requirements. The CFPB guidance provides

In evaluating compliance with the FCRA as a result of the pandemic, the Bureau will consider a consumer reporting agency’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 timeframe.

The CFPB’s guidance, while potentially excusing (in some instances) strict compliance with the dispute investigation timeline requirements of the FCRA, nevertheless continues to require that furnishers and consumer reporting agencies move “as quickly as possible” to resolve disputes.

We continue to monitor the evolving response to the COVID-19 pandemic as it impacts furnishers and consumer reporting agencies. We remain available to field questions related to credit reporting in the midst of this environment. Please contact us if we can assist you.