Financial Institutions Beware!

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Covid Related Protection for Consumers Afforded By The CARES Act

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The Covid-19 pandemic had an immediate impact on consumers. Within three months of the pandemic’s start, the unemployment rate jumped to over 11 percent and a large number of consumers were forced to file for unemployment benefits, creating a financial hardship for many. On March 27, 2020 Congress amended certain provisions of the Fair Credit Reporting Act (FCRA) pursuant to the CARES Act. Certain protections for consumers including homeowners and student loan borrowers were enacted.

The CARES Act requires that creditors report borrowers as current if they were not behind on mortgage payments when the borrowers sought a forbearance. However, for anyone who was thirty days late or more before a payment deferral was approved, their credit report would still reference the late payment but would not impact the borrower’s credit score. Essentially, during the duration of the forbearance, the borrower’s payment status was frozen at whatever level they were at when the borrower requested the payment pause. Still, there are consumers across the country that are up in arms stating their credit is being ruined, as some lenders are mistakenly putting black marks on their accounts.

Consumers who deferred making mortgage, car loan or credit card payments during the pandemic may have had such payments improperly reported as late to the Credit Reporting Agencies. Consumers should not be penalized by lenders for Covid related protections afforded by the CARES Act. However, many lenders are unclear about how the consumer would have to pay back the amount in forbearance and improper reporting of debts has resulted.

Financial institutions beware! Many consumers are filing disputes with the financial institution or the Credit Reporting Agencies. Under FCRA, financial institutions have a duty to investigate such disputes. If the dispute is not resolved in a manner favorable to the borrower or the lender fails to conduct a reasonable investigation, consumers may consult with counsel and file a lawsuit alleging liability pursuant to FCRA. Class-action lawsuits against certain lenders may result if multiple borrowers were impacted.

Sources:
U.S. Department of Labor. July 17, 2020. Economics News Release: Employment Situation Summary. Available at: https://www.bls.gov/news.release/archives/laus_07172020.pdf

Consumer Reports. February 3, 2021 Why the Pandemic May Be Hurting Your Credit Score https://www.consumerreports.org/credit-scores-reports/why-the-pandemic-may-be-hurting-your-credit-score/

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