COVID-19 and Credit Reporting – Regulatory Response and Resulting Litigation Risks

Passed in response to the impact of COVID-19, section 4021 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748, 116th Cong. (2020)) amended the Fair Credit Reporting Act (FCRA) in a variety of ways that impact credit reporting entities.  Mainly, it requires a furnisher of credit information who provides any type of consumer accommodation to report the consumer’s account as either “current,” or as the status reported prior to the accommodation if not previously current, for the duration of the period of the accommodation.  Put another way, a furnisher of information cannot report a consumer’s account as delinquent so long as the account was current before COVID-19 impacted the consumer.  Accommodation under the CARES Act includes situations where the credit reporting entity enters into an agreement with a consumer to defer one or more loan payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or where any other assistance or relief is granted to a consumer who is affected by COVID-19.  These new reporting requirements are retroactive to January 31, 2020, and do not apply to charged-off accounts.

As Goodwin’s Enforcement Watch previously reported, on April 1, 2020, the Consumer Financial Protection Bureau (CFPB) issued a Policy Statement Concerning Credit Reporting and COVID-19 (Policy Statement).  The Policy Statement encouraged credit reporting agencies and furnishers of information to uphold their pre-COVID-19 responsibilities under the FCRA in reporting accurate information during, and despite, the current pandemic.  The Policy Statement notes that consumers, as well as users of consumer credit reports and the economy as a whole, will benefit as a result of accurate credit reporting.

In response to the CFPB’s guidance, Senators Sherrod Brown and Elizabeth Warren, among other Democratic Senators, wrote a letter to the CFPB expressing disapproval and warning that the Policy Statement would lessen essential consumer protections during this time when protection is especially critical.  The Senators called for increased protections for consumers under the FCRA, and, notably, this sentiment appears to be shared by at least some state regulators.  This is of particular note because, although courts have generally held that there is no private right of action against data furnishers under the FCRA, state and federal governmental agencies can pursue claims against both data furnishers and credit reporting entities.

For example, on March 21, 2020, New York Governor Andrew Cuomo took steps to guard against negative credit reporting by issuing Executive Order No. 202.9 (EO 202.9) (Order).  The Order, effective through April 20, 2020, provided for payment accommodations, extension of payment due dates, and adjustment of existing loan terms, in an attempt to mitigate the adverse consequences of any resulting credit reporting that stems from delinquencies.  Although Governor Cuomo has not extended the Order, he retains the authority to do so.

Similarly and although not an enforceable order, on March, 30, 2020, the Illinois Department of Financial and Professional Regulation (IDFPR) issued guidance for its licensed entities, including credit reporting entities, suggesting steps they can take to mitigate damage to consumers’ credit during the COVID-19 crisis.  Namely, the IDFPR’s guidance instructs that if credit reporting entities must report a consumers’ credit information, they should use the disaster code in conjunction with a deferment, as this will have neutral impact on consumers’ credit.

As federal and state governments respond to COVID-19, entities regulated by the FCRA should anticipate changing guidance and legislation.  In light of the Democrats’ rather vocal disapproval of the CFPB’s Policy Statement, there is certainly a risk that perceived mismanagement of accommodations or, even perhaps, non-compliance with “pre-pandemic” credit reporting legal standards, could result in litigation and enforcement actions.

From the outset, and in order to minimize that risk, credit reporting agencies and furnishers of credit information should prepare themselves to examine, understand and address any limitations to their current systems and procedures as the regulatory framework continues to evolve.  This is particularly the case for furnishing credit information that relates to consumer communications, and requests for accommodation, such as suppression of credit reporting and late fee forgiveness.