Prepare for Compliance Reporting Requirements Under the Fair Credit Reporting Act

The Fair Credit Reporting Act[1] (FCRA) requires furnishers (e.g., a financial institution) of consumer information to consumer credit reporting agencies to maintain reasonable policies and procedures to ensure the accuracy and integrity of information furnished. The impact of the COVID-19 pandemic on consumer borrowers and related relief granted by the banking regulatory agencies regarding loan modifications has given rise to changes in the way loans are reported to consumer credit reporting agencies.

One of the many provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was signed into law on March 27, 2020, allows financial institutions to provide a deferral of loan and credit card payments to those experiencing financial hardship or having difficulty making on-time mortgage payments without punitive classification of such modified loans in their financial accounting and reporting. Another protection included in the CARES Act is the deferral of foreclosure on residential homeowners for those homeowners that owe on mortgages backed by Fannie Mae or Freddie Mac or by other federal agencies (FHA) until after Jan. 31, 2021, and Feb. 28, 2021, respectively.

As a result, FCRA was amended so that any loans that have had a modification for the deferral of payments and any loans subject to postponement of foreclosure under the CARES Act must not be reported as delinquent to consumer credit rating agencies. If an account was current at the time of the CARES Act accommodation, the reporting of the account must continue to be listed as current. If an account was delinquent prior to the accommodation, the furnisher of information cannot advance a delinquent status. As a result, borrowers receiving relief from financial institutions due to financial hardship as a result of COVID-19 will not experience a negative impact on their credit scores. However, the accommodation reporting requirements under the CARES Act do not apply to obligations that have been charged off.

The Consumer Financial Protection Bureau (CFPB) issued credit reporting guidance for credit reporting agencies and furnishers of information during the COVID-19 crisis.[2] In upcoming examinations, we anticipate that banking regulators will review a financial institution’s reporting of loans with deferral options, accommodations granted or foreclosure processes stalled.

In preparation for an upcoming regulatory exam, financial institutions should self-assess their reporting practices to consumer rating agencies and ensure their policies, procedures and practices reflect the revisions to the FCRA and recent CFPB guidance.

Financial institutions should also ensure their policy, procedures and practices address the following:
  • Reporting information accurately to credit rating agencies;
  • Conducting reasonable investigations of consumer disputes;
  • Providing corrected or updated information to the credit reporting agencies;
  • Monitoring internally and self-testing of the information reported;
  • Training for those responsible for reporting and investigations of disputes, including what information is reported and data fields the furnisher is providing;
  • Training on account fields in the loan system that are essential for proper reporting to credit rating agencies and how these fields will be updated to reflect the accommodation(s);
  • Monitoring a borrower’s accommodation expiration dates; and,
  • Monitoring any future revisions or updates to FCRA and the CARES Act to determine how the financial institution will consider revisions.

Financial institutions continue to play a vital role in the stabilization of our economy by offering accommodations to borrowers experiencing financial hardship as well as, with the FCRA amendments, how these accommodations are reported to other stakeholders. The FCRA revisions will help borrowers emerge compassionately from the financial hardships caused by COVID-19 as it relates to credit reporting. For more information, reach out to us at benchstrength@dhg.com.

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References:

[1] Fair Credit Reporting Act. Federal Trade Commission.

[2]  CFPB Issues Credit Reporting Guidance During COVID-19 Pandemic. Consumer Financial Protection Bureau. 1 April 2020. https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-credit-reporting-guidance-during-covid-19-pandemic/

ABOUT THE AUTHORS

Dave Niles
Partner, DHG Financial Services
Dave.Niles@dhg.com

Ann Barrar
Senior Associate, Financial Services

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