Bradley Arant Boult Cummings LLP

Although the major federal banking and consumer lending regulatory industries have issued a joint statement indicating “that financial institutions should work constructively with borrowers and other customers in” areas affected by COVID-19, there are open questions regarding whether financial institutions should change their normal policies and procedures for furnishing credit reporting information regarding the status of a borrower’s account when the borrower’s repayment may have been affected by the virus. This lack of guidance is concerning in light of specific statements from policymakers identifying the potential of harm through adverse credit reporting.

On March 9, a group of eight Democratic senators wrote a letter to a number of federal banking regulatory agencies asking the regulators to issue guidance encouraging financial institutions to take into account the impact of COVID-19 and work with affected customers. The letter specifically requested that the guidance “encourage financial institutions to take steps to prevent adverse information from being reported to the credit bureaus and utilized in any manner that harms consumers affected by the virus.” Two days later, a group of representatives led by Rep. Maxine Waters, the chairwoman of the House Committee of Financial Services, wrote a second letter addressed to all of the major credit rating agencies and a number of banking industry groups. In this March 11 letter, the representatives again identified the potential of harmful negative credit reporting for borrowers affected by COVID-19 and “encourage[d]” financial institutions “to consider the appropriateness and fairness of reporting adverse information to consumer reporting agencies, given the unique circumstances of the coronavirus.”

In response to the federal regulators’ joint statement, on March 9, the Consumer Data Industry Association (CDIA), which promulgates the standardized Metro 2 standards for credit reporting, issued an announcement. Per the CDIA, the announcement serves as a “reminder to all data furnishers that there is specific guidance available for furnishers who report information about consumers (1) where consumers’ accounts are affected by natural and declared disasters (FAQ 58), or (2) consumers’ accounts [are] placed in forbearance as a result of a natural or declared disaster, or for other reasons (FAQ 45).”

On March 13, President Trump declared the COVID-19 outbreak to be a “national emergency” pursuant to Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. § 5191). Note that the act defines an “emergency” differently from a “major disaster” (which is defined in the act as a naturally occurring weather or geologically related event). Thus, notwithstanding the CDIA’s announcement, it remains unclear whether a furnisher could report a COVID-19 related forbearance or deferment as related to a “natural disaster” and still be consistent with its statutory mandate under the Fair Credit Reporting Act not to report any information known to be “inaccurate.”

Furthermore, reporting accounts as affected by natural disasters could introduce a number of operational complexities. There is no standardized guidance – from CDIA or any regulatory body – as to how to determine whether a borrower is actually affected by the COVID-19 outbreak so as to affect credit reporting. Unlike natural disasters such as flooding, hurricanes, or earthquakes, there are no approximate geographical boundaries that can provide suggestive data about the reasons behind a consumer’s account status. Additionally, marking an account as in forbearance or deferred in a furnisher’s system of record could delete other meaningful information about the date of first default or the “actual” account status, which could severely restrict the furnisher’s ability to make corrections at a later date.

As of right now, without any specific guidance from federal regulators, furnishers should consider suppressing credit reporting information for any account for which (1) the furnisher has any information indicating that an adverse status may be related in any way to the effects of the COVID-19 outbreak, and (2) there are no other federal laws or regulations mandating reporting. Suppressing an account can introduce operational issues as well, but these may generally be more manageable than the issues associated with reporting an account as deferred or in forbearance. For any accounts not meeting these criteria, furnishers should continue to report them accurately unless and until federal regulators provide more detailed guidance as to how they should be reported. For accounts that have been formally placed in  “forbearance” status due to a borrower’s hardship caused by COVID-19 issues, furnishers should use the available reporting codes for forbearance consistent with existing internal policies and procedures, but avoid reference to an underlying issue related to a “natural [or] declared disaster.