What are the correct procedures for reporting accounts affected by natural disasters, forbearance, or special payment arrangements, and how do FCRA and Metro 2® guidelines ensure compliance and consumer protection?
Natural disasters and financial hardships can disrupt consumers’ ability to make regular payments. The Fair Credit Reporting Act (FCRA) and Metro 2® guidelines provide specific instructions for data furnishers to report these situations accurately, ensuring fair treatment for affected consumers and compliance with regulatory standards.
Definitions and Context
- Natural Disaster Impact: Events such as hurricanes, wildfires, floods, or declared emergencies that temporarily affect a consumer’s ability to pay.
- Special Payment Arrangements: Includes forbearance, deferment, payment holidays, or other temporary relief plans negotiated between the consumer and creditor.
Reporting these scenarios correctly is critical to prevent unfair negative credit impacts and to comply with federal and state laws.
Step-by-Step Reporting Standards
1. Reporting Natural Disaster Impact
- Special Comment Code AW: Use “AW” (Affected by natural or declared disaster) in the Special Comment field (Metro 2® Field 19) for accounts impacted by a disaster.
- Account Status: Continue to report the actual status of the account (e.g., current, delinquent, or derogatory) as determined by the creditor’s policy.
- Duration: Report the AW code each month as long as the disaster impact applies. Remove the code by blank-filling the field when the condition no longer applies.
- Documentation: Maintain records of disaster declarations and consumer communications for compliance.
2. Reporting Forbearance, Deferment, and Payment Holidays
- Forbearance (Special Comment Code CP): Use “CP” to indicate an account is in forbearance. Report the actual account status (often “11” for current if no payments are due).
- Deferment: Report Terms Frequency “D” (Deferred) and Scheduled Monthly Payment Amount as zero. Use the K4 Segment to indicate the deferred payment start date.
- Payment Holidays/Skip-a-Pay: Adjust Terms Frequency and Scheduled Monthly Payment Amount as appropriate. If no payments are due, report Account Status “11” (current).
- Partial Payment Arrangements (Special Comment Code AC): Use “AC” for accounts under a partial payment agreement.
3. Payment History Profile
- Metro 2® Field 18: Use “D” in the Payment History Profile for months when no payment is required due to forbearance or deferment. Do not alter previously reported history.
4. Compliance and Consumer Communication
- FCRA: Requires accurate and fair reporting. Do not report consumers as delinquent if they are in a valid relief program and not required to pay.
- Consumer Notification: Clearly communicate the terms of relief, the expected reporting, and the duration of any special arrangement.
Compliance Requirements
- FCRA: Mandates fair and accurate reporting, especially during emergencies or relief periods.
- Metro 2®: Provides detailed codes and field usage for disaster and relief reporting (see Exhibit 6, FAQ 43, 44, 45, and 58 in the CRRG).
- State Laws: Some states may have additional requirements for disaster or hardship reporting—always verify local regulations.
Impact on Consumers
- Credit Scores: Proper use of disaster and relief codes can prevent unnecessary negative marks and support credit recovery after hardship.
- Transparency: Accurate reporting ensures lenders and future creditors understand the context of payment interruptions.
Conclusion
Handling accounts impacted by natural disasters or special payment arrangements requires careful attention to FCRA and Metro 2® standards. By using the correct codes, maintaining accurate records, and communicating clearly with consumers, data furnishers can support fair credit reporting and help consumers recover from hardship.