On June 16th, the CFPB issued a Compliance Aid Frequently Asked Questions (FAQs) addressing the CARES Act changes to the Fair Credit Reporting Act (FCRA) and clarifying furnisher reporting obligations regarding consumers who have received payment assistance or forbearance. In public remarks in connection with Consumer Data Industry Association webinar released June 19, 2020 Director Kraninger highlighted the CFPB’s commitment to consumers: “I do want to stress that we are telling struggling borrowers to reach out to their servicers to see what options are available to them. Under CFPB regulations, servicers are required to have policies and procedures in place to ensure the disclosure of the availability of CARES Act mortgage forbearance to consumers. If a consumer has an issue with their servicer, we encourage them to submit a complaint to us if the consumer can’t first resolve the matter with the servicer.” Here are few of the highlights in the FAQ that address issues which may prove the most challenging for lenders, services and furnishers and agencies.
FAQ #5 “Constructive Work” With Borrowers Encouraged.
“Even if accommodations are not required by the CARES Act or by other applicable law, the Bureau and other Federal and State agencies have encouraged financial institutions in prior guidance (the March 22, 2020 Federal Reserve Intragency Statement) to work constructively with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19.” This guidance goes to the spirit of the CARES Act to help consumers impacted by the pandemic, but also asks servicers use their best judgment in offering assistance beyond that required. Understanding borrower’s specific circumstances will be critical in assessing the reasonableness of efforts. Where personnel are applying judgment, having internal servicer guidelines for escalation to ensure uniformity and consistency may prove beneficial. Tracking and monitoring metrics and other characteristics of those loans and borrowers may also help ensure fairness.
FAQ #7 Ensuring All Related Trade Line Information is Accurate.
Where under the CARES Act requirements, an account is deemed current for FCRA reporting (e.g. the account was paid current before the pandemic impact and the payment assistance relief), furnishers should be focused on the detail of the trade line. “For example, information a furnisher provides about an account’s payment status, scheduled monthly payment, and the amount past due may all need to be updated to accurately reflect that a consumer’s account is current consistent with the CARES Act. Furnishers are encouraged to ensure they understand the data fields that the consumer reporting agencies to whom they report utilize and which standard data reporting formats may apply.”
FAQ #8 Special Comments Are Not Enough.
The CARES Act FCRA changes require essentially a “freeze” in time until the pandemic emergency relief period ends. If the account was current it should be reported current. If it was delinquent the delinquency should not be advanced. The FAQ plainly states that it is insufficient for furnishers to provide a special comment or code regarding the impact of the pandemic. “Furnishing a special comment code indicating that a consumer with an account is impacted by a disaster or that the consumer’s account is in forbearance does not provide consumer reporting agencies with this CARES Act-required information and therefore furnishing such a comment code is not a substitute for complying with these requirements.”
FAQ #9 Don’t Lump All Borrower Accounts Together.
Noting the limitations of servicer systems and/or perhaps the best of servicer intentions, the FAQ warns that all accounts should not be reported in a lump. Only those accounts in forbearance should be reported as such. If the borrower has other account(s) and has not requested forbearance on them, those accounts should not be reported as such. The Bureau hopes to avoid increased risk of inaccurate reporting and consumer confusion.
FAQ #10 The Accommodation Period Persists.
Once the accommodation period concludes, furnishers are advised to be careful about the calculation of delinquency. Essentially, the period’s protections remain in place as to any month delinquency count. “A furnisher also cannot advance the delinquency of a consumer that was maintained pursuant to the CARES Act based on the time period covered by the accommodation after the accommodation ends.” Similarly, if the account was reported current pursuant to CARES Act requirements, any new reportable delinquency will run from after the accommodation period assuming required payments are not made at that time.
Conclusion & Takeaways.
Credit reporting is technical and detail-oriented. Systems sometimes have limitations or automations that may result in unintended consequences in light of the CARES Act requirements and the Bureau’s guidance. Especially, as we come out of the pandemic, furnishers should be critically focused on how their systems will generate reporting on accounts which had been CARES Act current, under forbearance, and were delinquent prior to pandemic. One size does not fit all. Similarly, in assessing continuing forbearance and borrower assistance options, understanding customers’ economic circumstances and ability to pay will be essential to keeping borrowers on a workable path forward and to avoiding servicers’ regulatory and litigation risk.