Bradley Arant Boult Cummings LLP

We’ve been tracking regulatory developments related to credit reporting for loans where borrowers have been affected by the coronavirus outbreak. On April 1, the CFPB issued a statement about credit reporting for loans affected by COVID-19. The statement announces the CFPB’s “flexible supervisory and enforcement approach during this pandemic” and seeks to reassure credit reporting agencies and furnishers that the “circumstances [they] face as a result of the COVID-19 pandemic and entities’ good faith efforts to comply with their statutory and regulatory obligations” (including obligations under the CARES Act) will be considered in any supervisory or enforcement context. The FHA followed with its issuance of Mortgagee Letter 2020-06, which addressed several COVID-19 loss mitigation issues, including credit reporting. Unfortunately, neither the CFPB’s statement nor the HUD Mortgagee Letter fully clarifies the confusing credit reporting requirements included in the CARES Act.

To recap, Fannie Mae, Freddie Mac, and the Veterans Administration were the first major federal entities to announce a change in policy for credit reporting for COVID-19-affected loans. Each instructed lenders offering forbearance to COVID-190-affected borrowers to suppress credit reporting for the affected accounts.

Congress then enacted the CARES Act, which implemented additional – and arguably, conflicting – credit reporting requirements for borrowers receiving forbearance due to COVID-19-related hardships for repaying federally related loans. The CARES Act amends the Fair Credit Reporting Act by adding a new subsection to Section 623(a)(1) of the FCRA (which concerns the “responsibilities of furnishers”). This new subsection (entitled “Reporting Information During COVID-19 Pandemic”) defines the term “accommodation” as including most forms of loss mitigation (including loan modification, forbearance, and deferral) granted to a consumer affected by the COVID-19 pandemic. The CARES Act then appears to mandate how furnishers must report credit information for borrowers receiving an accommodation during the “covered period” (generally, the period of the COVID-19 national emergency):

[I]f a furnisher makes an accommodation with respect to 1 or more payments on a credit obligation or account of a consumer, and the consumer makes the payments or is not required to make 1 or more payments pursuant to the accommodation, the furnisher shall—

(I) report the credit obligation or account as current; or

(II) if the credit obligation or account was delinquent before the accommodation—

(aa) maintain the delinquent status during the period in which the accommodation is in effect; and

(bb) if the consumer brings the credit obligation or account current during the period described in (aa), report the credit obligation or account as current.

Under the CARES Act, suppressing credit reporting does not seem to be an option. While furnishers do not generally have an obligation to furnish credit information (the FCRA only requires that they do not furnish information known to be inaccurate), the language added by the CARES Act implies a mandate to report (“the furnisher shall report…”).

But the CARES Act mandate carries some absurd results. For consumers who are current when they enter forbearance, they will continue to be reported as current during the forbearance period (so long as they make any payments required under the forbearance plan). That is generally consistent with current Metro 2 industry guidelines. But for consumers who were already delinquent when they began forbearance, the CARES Act mandate appears to be worse for consumers than existing industry practice. Under Metro 2, a consumer who is delinquent at the time that he or she enters forbearance would be reported as Code 11 (“current”), with a notation that the consumer is in forbearance. Under the CARES Act, that same consumer is instead reported as delinquent for the duration of the forbearance period unless he or she cures the delinquency. That is an especially odd result for loans owned or secured by Fannie Mae, Freddie Mac or insured by the VA, where the pre-CARES Act guidance mandated a suppression of reporting, which would generally be better for consumers than a delinquent status.

Given the odd result, furnishers questioned whether the act should be interpreted strictly. First, they have questioned whether credit reporting for COVID-19 affected loans is truly mandatory, in light of the long-established general rule that there is no affirmative obligation to provide credit reporting. It would be logical to assume that Congress did not intend to create a credit-reporting mandate, but instead only sought to clarify the requirements if a company did decide to report a consumer’s credit.

Second, furnishers have questioned whether, if the CARES Act does have a credit-reporting mandate, does it actually require furnishers to report accounts that were delinquent at the time of the beginning of the forbearance period as delinquent? The phrasing of that section of the act is odd; it states that if the furnisher offers the consumer an “accommodation,” it “shall report the credit obligation or account as current; or, if the credit obligation or account was delinquent before the accommodation,” then the furnisher shall maintain the delinquent status at the beginning of the forbearance period. Seeking to avoid the odd result of mandatory adverse credit reporting, some furnishers have interpreted this section as giving the furnisher the option to report any account in forbearance as current.

In short, furnishers would greatly benefit from further guidance. Unfortunately, the CFPB’s statement does not provide a definitive answer as to whether the CARES Act includes an actual mandate to provide credit reporting. The statement both recognizes that “companies generally are not legally obligated to furnish information to consumer reporting agencies,” and also describes the CARES Act as “generally requir[ing] furnishers to report as current certain credit obligations for which furnishers make payment accommodations to consumers affected by COVID-19 ….” Thus, the CFPB’s statement is broad enough to cover all three interpretations of the act: (1) credit reporting can be suppressed; (2) all accounts given an accommodation can be reported as current; or (3) furnishers must report delinquent accounts in forbearance as delinquent. Without specific guidance, the CFPB’s representation that it will not “cite in examinations or take enforcement actions against those who furnish information to consumer reporting agencies that accurately reflects the payment relief measures they are employing” is not determinative; whether the reporting is “accurate” in light of conflicting guidance is the very question at issue.

The FHA also weighed in on the credit reporting issue on April 1, issuing Mortgagee Letter 2020-06, which, among other issues, briefly addressed credit reporting for borrowers receiving forbearance for COVID-19-related hardships. But the Mortgagee Letter is no more helpful than the CFPB statement in providing clarity. It states that that “any Borrower who is granted a [FHA COVID-19 forbearance] and is otherwise performing as agreed is not considered to be delinquent for the purposes of credit reporting” – a mandate that is clear, but not in any real dispute, as it is clearly required under the CARES Act and consistent with existing industry practice. FHA then states that it “requires Servicers to comply with the credit reporting requirements of the Fair Credit Reporting Act (FCRA)” – again, not especially helpful – “however, FHA encourages Servicers to consider the impacts of the COVID-19 National Emergency on Borrowers’ financial situations and any flexibilities a Servicer may have under the FCRA when taking any negative reporting actions.” Once again, that general statement of “encourage[ment]” does not offer any guidance as to how to implement the odd apparent mandates of the CARES Act or square them with existing practice or other regulatory mandates.

In short, furnishers are in a difficult position right now. They will simply have to choose a credit reporting policy that best matches both the text of federal law and the announced goals of the federal regulatory bodies and other institutions until they receive further guidance.