In the Wake of the CARES Act, States Focus on Consumer Credit Protection

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Since the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020, states have rapidly begun to expand COVID-19-related consumer financial protections, including those regarding adverse credit reporting.

For example, on March 30, Pennsylvania announced the PA CARE Package, a new regulatory initiative encouraging lenders to accommodate borrowers facing COVID-19-related financial struggles. Financial institutions that commit to participate in the PA CARE Package must offer the following:

  • Expansion of small and medium business loan availability
  • 90-day grace period for mortgages
  • 90-day grace period for other consumer loans
  • 90-day window for relief from fees and charges such as late and overdraft fees
  • Foreclosure, eviction or motor vehicle repossession moratorium for 60 days
  • No adverse credit reporting for accessing relief on consumer loans

Pennsylvania’s prohibition on adverse credit reporting echoes Section 4021 of the CARES Act, which amends the Fair Credit Reporting Act (FCRA) to restrict how lenders report “accommodations” granted to consumers affected by COVID-19. Specifically, Section 4021 provides that when a lender grants an “accommodation” that allows a consumer to delay or skip one or more payments, the lender must either (i) report the account as current, or (ii) maintain the account status if the account was already delinquent.

However, if the consumer brings a delinquent account current, that reporting must be updated. And, these new rules do not apply to charged-off accounts. The CARES act defines “accommodations” to include “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 affected by COVID-19.

These changes to the FCRA are effective retroactively to Jan. 31, 2020. This arguably means lenders must retroactively update their reporting for any accommodations granted in February or early March. This may be particularly important for lenders addressing delinquencies that result from COVID-19, but predate the CARES Act or the date of a lender’s accommodation. These protections, which amend Section 1681s-2(a) of the FCRA, last until 120 days after enactment of the CARES Act or 120 days after the national emergency declaration for COVID-19 is terminated, whichever is later.

As states continue to build on these requirements, lenders will be forced to navigate a patchwork of varying reporting rules. For example, on April 9, the District of Columbia enacted a wide-ranging COVID-19 relief statute which, among other things, provides for creation of a mortgage deferment program under which mortgagors may “not report to a credit bureau any delinquency or other derogatory information that occurs as a result of the deferral.”

Similarly, legislation pending in New York provides that “[n]o creditor shall report any new adverse information relative to late payments or non-payment of consumer debt or other financial obligations by persons affected by the coronavirus (COVID-19) during a period of a declared state emergency to a credit reporting agency.” Unlike the CARES Act, this proposed provision does not differentiate between types of delinquencies, nor is it limited to consumers who have already received “accommodations” from their lenders.

Illinois, on the other hand, has directed creditors to “use the disaster code in conjunction with a deferment, which will have neutral impact on a borrower’s credit.” Still other states, such as California, have directed lenders to refrain from negative credit reporting in connection with COVID-19, but have yet to provide detailed guidance on what that means. Many more states have adopted programs that, like Pennsylvania’s, require or encourage financial institutions to cooperate with impacted borrowers by waiving late fees, restricting debt collection activities, allowing deferred payments, and otherwise adjusting loan terms to avoid delinquencies and defaults.

Every day, states continue to expand these consumer protections, including by restricting adverse credit reporting. Very likely, plaintiffs’ lawyers will use this increasingly complicated landscape to their advantage, particularly as consumer financial delinquencies and bankruptcies increase. And, although the Consumer Financial Protection Bureau has indicated that it will adopt a “flexible approach” toward FCRA enforcement in light of COVID-19 disruptions, it remains to be seen whether the courts will be similarly sympathetic to the challenges furnishers are facing under the FCRA and related state laws. Lenders should therefore continue to closely monitor state legislative and agency guidance in this area as it continues to develop.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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