The CARES Act was designed to help protect consumers’ credit reports from the massive job loss and economic harm caused by COVID-19 business shutdowns. The idea is to ensure that someone’s credit is not impacted by a temporary inability to pay bills. While the CARES Act is helpful for this, there are a couple gaping holes as explained below that will not protect everyone’s credit during these times.
Basically, this Act added a new subparagraph (F) to 15 U.S.C. Section 1681s-2(a)(1) of the Fair Credit Reporting Act (“FCRA”). This applies for anything that is a credit obligation including credit cards, auto debt, medical debt, home mortgages etc.
These temporary protections are only in effect for 120 days from March 27, 2020. A couple areas of concern are in bold below:
- It requires an “accommodation” Section 1681s-2(a)(1)(F)(iii). This can be a forbearance such as with mortgages – a 6 month forbearance with a second 6 month forbearance, an loan modification including payment reduction or extension. However, accommodations are voluntary and it may be difficult to reach your creditor with extremely long hold times.
- Government mandated accommodations are limited to certain home mortgages, certain federal student loans and rental agreements. So credit cards and auto loans are left solely to lender discretion.
- Does not apply to charged off accounts. Section 1681s-2(a)(a)(F)(iii). So if you are already in default, these protections do not apply.
If a creditor provides an accommodation it is required to report the consumer’s credit as current. So the payment history field and account status must remain current.
All three major credit reporting agencies, Equifax, TransUnion and Experian, are offering free weekly credit reports through April 2021.
Although the CARES Act protections do not have a private cause of action, all a consumer needs to do is file a dispute with the credit reporting agency to trigger a furnisher’s reinvestigation duties under 15 U.S.C. Section 1681s-2(b). Therefore, a furnisher and CRA get the usual free bite at the apple – where they can initially report the debt incorrectly – but once it is disputed, they are liable, if they fail to correct the credit report. Put another way, if they fail to fix the error, they then become liable.