On April 1, 2020, as the nation was in the beginning stages of its COVID-19 shutdown and companies, including financial institutions, encountered operational challenges, the CFPB released a statement on supervisory enforcement regarding the Fair Credit Reporting Act (FCRA) and the CARES Act (the “Statement”). In discussing investigating disputes, the CFPB recognized the operational disruptions taking place that could affect a furnisher’s ability to respond to disputes within the timeframes provided by the FCRA and implied that it would consider a furnisher’s good faith efforts to comply even if the deadlines to investigate and respond to disputes were not strictly met. Given the national emergency, the CFPB indicated that it would look at several factors before taking enforcement action.
Although the Statement did not appear to be political, almost immediately after it was issued, several attorneys general, other politicians, and former director Richard Cordray chastised the CFPB for not strictly enforcing the statutory time periods in the FCRA. Their contention was that now more than ever, consumers needed the protections offered by the CFPB. This criticism did not account for the operational difficulties faced by furnishers and appears to have been based upon a belief that the Statement signaled an intention by the CFPB to forego enforcement of the FCRA, rather than merely a recognition that furnishers should not be penalized for making a good faith effort to overcome initial operational limitations.
Responding to this criticism and questions that have arisen largely from furnishers trying to navigate credit reporting under the CARES Act, on June 16 the CFPB issued “Consumer Reporting FAQs Related to the CARES Act and COVID-19 Pandemic.” The CFPB clarified that it expects all furnishers to make good faith efforts to investigate disputes quickly and within the statutory time frame. However, it reiterated that it will consider individual circumstances that consumer reporting agencies and furnishers face due to COVID-19 in deciding whether to take enforcement action.
For example, the CFPB may decline to take enforcement action against a small furnisher located in a heavily impacted city that lacks the infrastructure to meet the deadlines despite good faith efforts, but may hold a national bank to a higher standard given its geographic scope and robust infrastructure. However, there is no benchmark for what constitutes “good faith efforts.” Thus we recommend that furnishers respond to disputes within the statutory time frame to eliminate the possibility of an enforcement action. In addition, if the timeframes cannot be met, we recommend documenting any source of delay and efforts to eliminate the delay to demonstrate good faith efforts are being made, not only to timely respond, but also to improve response time. This may help prevent a CFPB enforcement action. However, be aware that there remains potential reputational risk in missing deadlines notwithstanding a good faith effort since politicians and attorneys general appear to be looking at this issue closely and may take action independent of the CFPB.
The CFPB also addressed substantive reporting itself, reiterating that furnishers who provide CARES Act accommodations must report accurately and consistent with the requirements of the CARES Act. For example, a loan that was current before the accommodation was granted must continue to be reported current during the accommodation period. In addition, a loan 30 days past due at the time of the accommodation must continue to be reported as 30 days past due and cannot be aged during the accommodation period. Further, after the accommodation period concludes, a furnisher cannot advance the delinquency. For example, if no payments were required during the accommodation period and the loan was current entering the accommodation period, it must remain current after the accommodation period ceases.
To ensure the accuracy of credit reports, the CFPB specified that furnishers must accurately report the information (i.e. that an account is current) in the appropriate data fields when it provides its information to the consumer reporting agencies. The CFPB made it clear that there is no simple shortcut for meeting this obligation, and merely including a special comment code on the trade-line to reflect that the consumer is affected by the pandemic or in forbearance will neither substitute for compliance with the reporting requirements nor satisfy the furnisher’s obligations under the FCRA. Although it is hard to put a timeline on when consumers will start complaining about the credit reporting of their accounts, it is a foregone conclusion that complaints, whether direct or indirect, will be received. In its FAQs, the CFPB has stated that “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.” Although doing so will not eliminate all consumer complaints, failure to do so could lead to enhanced exposure through a private right of action or through an enforcement action.
The bottom line is: to minimize risk, a furnisher should comply with the statutory time frames and make sure its systems have been modified to accurately report a consumer’s account consistent with the CARES Act. Above all else, accuracy is paramount, and simply adding a comment code on the trade-line will not satisfy its reporting requirements.