On May 15, 2020, the US House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions Act, or the HEROES Act. This act seeks to amend the Fair Credit Reporting Act (FCRA) with the goal of aiding struggling consumers. Although well-intentioned, there are multiple consequences on the horizon if the currently proposed act is made into law.
First, the bill seeks to prohibit Consumer Reporting Agencies (CRA) from reporting any adverse information that occurred during a “major disaster” as declared by the President. Only information related to a felony criminal conviction could be mentioned in a consumer report during such a period. The proposed act does not clarify how CRA’s are meant to identify whether adverse information was a direct result of the declared “major disaster” and there is no identified procedure for such a determination. Since most actions have multiple root causes, it is unclear how CRA’s could be positive that a missed payment or default was a direct outcome of the “major disaster”.
Second, the HEROES Act would require the Consumer Financial Protection Bureau (CFPB) to create a website for consumers to self-report their economic hardship and identify the cause as the “major disaster”. CRA’s would then be required to check this website on a weekly basis and amend their own records accordingly, deleting the adverse items so identified. However, the proposed reporting does not directly align with CRA records, and CRA’s would still not be able to fully conclude which adverse items were directly caused by the “major disaster.” Further, consumers would not be required to provide documentation supporting their claims.
Third, CRA’s will be faced with the problematic possibility of indirectly reporting adverse information. Rather than directly stating that a consumer missed certain payments, the record would show gaps during those months, indicating payments were missed. An incomplete record would be tantamount to reporting of adverse information and leave creditors to fill in the blanks on their own.
Fourth, if CRA’s are not allowed to notify debt collectors of bankruptcy that arises as a cause of a “major disaster”, debt collectors may run afoul of the Fair Debt Collections Practices Act or the bankruptcy injunction under the Bankruptcy Code. The impact goes beyond the work of CRAs and has more wide-reaching impacts than the HEROES Act recognizes.
Finally, creditors would find themselves unable to make an accurate determination of risk because of the incomplete records they would receive. CRA’s would be unable to provide detailed credit information regarding consumers, and creditors would be forced to draw negative conclusions about any gaps in the information provided. Creditors might, therefore, increase the cost of obtaining credit.
The HEROES Act would make compliance with the FCRA virtually impossible, a situation that would lead to untold lawsuits. Since one predicted consequence of this bill is an increased cost of obtaining credit, the bill could actually end up hurting the very people it intends to help.
The Senate is not expected to issue its own iteration of the bill until June, and we can only hope that they reject it in its current form and that the revised form removes the proposed amendments to FCRA.