On March 27th, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion package intended to inject the economy with much-needed funds.
Most of you are aware of the CARES Act by now, and familiar with the stimulus checks that are (supposed) to be mailed out to tens of millions of Americans soon or the Small Business Administration’s Payroll Protection Program.
But there’s a whole lot more that goes into the CARES Act, and one such pivotal item is the changes to the Fair Credit Reporting Act. In fact, with Section 4021 of the CARES Act, there were some specific changes to the Fair Credit Reporting Act (FCRA) with new mandates for any institution that reports credit of clients or consumers.
Today, I will outline some bullet points and highlights of those changes.
So, what differences will we see with the Fair Credit Reporting Act?
- Debt relief deals are called an “accommodation” under the new law (in case you see that term pop up).
- Here are the options most creditors are offering:
- Defer one or more payments
- Allow a partial payment
- Grant a forbearance on delinquent balances
- Modify a loan or agreement
- Provide other relief or help
- If you have a credit card or any debt account and negotiate a debt-relief deal with the creditor, the creditor is required to keep reporting that account as current. That’s a big deviation from past debt relief negotiations and arrangements, which usually resulted in late payments or settlement language reporting on credit reports.
- But what if you were already late on payments when you came to an agreement or struck a deal with your creditor? In that case, your creditor can keep reporting your account as delinquent until you pay it current. Likewise, if the account is eventually charged off for non-payment, the charge off may keep reporting, too.
- However, if you are not able to come to an agreement or some sort of relief deal with your creditors and end up missing payments, the creditor may report that delinquency to the credit bureaus as usual.
- One way that creditors may try to soften the blow to consumers who miss payments (and can’t reach an agreement) is by adding a special code to that item on their credit report. These “disaster codes” actually already exist and are sometimes used in the case of hurricanes, floods, or other natural disasters, and can serve as an explanation or qualifier for anyone who reviews the consumer’s credit file in the future.
- However, any disaster codes that serve as a credit report asterisk to indicate the late payment occurred during the Coronavirus pandemic won’t stop the late payment from negatively impacting the report.
- That’s right – even with a disaster code, your credit score will still go down, but it may affect different credit scores (like FICO, Vantage Scores, etc.) differently.
- These changes to the Fair Credit Reporting Act will run from January 31st, 2020, for four months or until the end of the national state of emergency due to the Coronavirus pandemic.
If you have questions, think you may miss a payment, or just want to protect your credit score through these hard times, please reach out to Blue Water Credit!