How Should an Account Be Reported When the Consumer Is Affected by a Natural or Declared Disaster?

Natural or declared disasters, such as hurricanes, wildfires, or pandemics, can disrupt a consumer’s ability to meet their financial obligations. Accurate and compassionate credit reporting during these situations is essential for maintaining compliance with the Fair Credit Reporting Act (FCRA) and for protecting consumers from unnecessary harm to their credit profiles.

Understanding Disaster-Related Reporting

When a consumer is affected by a natural or declared disaster, lenders may provide relief options such as payment forbearance, deferral, or reduced payments. These actions must be reflected accurately on the consumer’s credit report to ensure transparency and fairness.

Steps for Reporting Disaster-Affected Accounts

1. Apply the Appropriate Special Comment Code:
   • Use Special Comment Codes to indicate that the account has been affected by a disaster. For example:
     • “AW” (Affected by natural or declared disaster) clearly communicates that the account status may not fully reflect the consumer’s financial situation due to the disaster.
   • This code helps lenders understand the context behind changes to the account, such as missed payments or adjusted balances.
2. Suspend Negative Reporting During Relief Periods:
   • If the lender has granted relief, such as payment forbearance or deferral, do not report the account as delinquent during the agreed-upon relief period. Instead, maintain the account’s current status, such as “Current” or “In Forbearance”, to reflect that the consumer is not required to make payments temporarily.
3. Update Payment History Accurately:
   • Ensure that the Payment History Profile reflects the disaster-related status appropriately. For example:
     • If payments are deferred, the payment history should indicate that no payments were due during the deferral period.
     • Avoid marking the account as late or delinquent if the consumer is in compliance with the relief terms.
4. Report Any Adjustments to Balances or Terms:
   • If the terms of the account are modified due to the disaster (e.g., reduced interest rates, extended repayment periods), update the credit report to reflect these changes. Use codes or notes to clarify the adjustments and their connection to the disaster.
5. Notify Consumer Reporting Agencies (CRAs):
   • Communicate all changes, including the application of Special Comment Codes and adjustments to account terms, to the relevant CRAs. This ensures that the consumer’s credit report is consistent and accurate across all bureaus.

Compliance with the FCRA

The FCRA mandates that all information reported to CRAs must be accurate, complete, and verifiable. For accounts affected by disasters, compliance involves:

• Accuracy: Ensure that the account reflects the consumer’s participation in relief programs accurately, including any temporary adjustments to payment terms or account status.
• Consumer Rights: Consumers have the right to dispute inaccuracies on their credit reports. Providing clear and accurate updates helps prevent disputes and ensures transparency.
• Retention of Negative Information: Any negative information reported prior to the disaster remains on the credit report, but new delinquencies during approved relief periods should not be reported.

Impact on the Consumer’s Credit Report

1. Credit Score Considerations:
   • Proper reporting during a disaster relief period prevents unnecessary harm to the consumer’s credit score. For example, marking an account as “Current” during forbearance ensures that the consumer is not penalized for missing payments they were not required to make.
2. Transparency for Lenders:
   • Accurately reporting disaster-affected accounts helps future lenders understand the consumer’s financial history in the context of extraordinary circumstances. This transparency fosters trust and fairness in credit evaluations.

Conclusion

Reporting accounts affected by natural or declared disasters requires careful attention to detail and strict adherence to FCRA guidelines. By applying the correct Special Comment Codes, suspending negative reporting during relief periods, and updating account terms accurately, data furnishers can ensure that credit reports remain fair and reflective of the consumer’s true financial situation. Proper handling of these accounts benefits both consumers and lenders by promoting transparency, fairness, and trust in the credit reporting process.