Whenever disaster strikes, there’s almost always two waves of pain: First, There’s the immediate human cost, which deserves top priority. Then there’s the financial cost. Lost jobs, credit card “maxing,” unpaid bills, lost homes. Unfortunately, America has a fine-tuned way of keeping score in the credit world: Credit reports. And credit reports have a long memory.
Long after the rest of the mess from natural disasters like hurricanes and tornados is cleaned up, credit reports can still tell the story of the damage. Unpaid bills normally haunt victims for seven years, even after disasters, though credit reporting agencies sometimes make accommodations for disaster victims. I know, because my long-time blog The Red Tape Chronicles began when I wrote about the financial impact of Hurricane Katrina (“Second wave for Katrina victims: bad credit)
At the moment, it’s unclear what the bureaus might do with coronavirus. Equifax, for example, says on it site that it is “monitoring” the outbreak. It advisors consumers who might be late on a bill to work directly with lenders, and offers the cold comfort of adding a “consumer statement” to their report.
“An example of a consumer statement,” the firm offers, is, “Be advised that the negative accounts on my credit report are related to the Coronavirus. I intend to make these up as soon as I can.”
Regulators can intercede, as they have in the case of unpaid medical bills, which now are only included in credit reports after a 180 day delay.
But as of now, Congress hasn’t thrown that kind of lifeline to consumers who will find their credit reports pockmarked by the virus, according to Chi Chi Wu, attorney at the National Consumer Law Center attorney.
“The Senate bill’s provision regarding credit reporting is entirely insufficient, weaker than the current industry standard for disaster victims, with little to actually protect consumers’ credit records from the devastating economic effects of this crisis,” she said in a statement Thursday. “Tens of millions of consumers will have their credit reports trashed and their scores nosedive because of mass unemployment and loss of income, impeding their ability to get affordable credit, jobs, housing, and to generally recover when this crisis is over….This bill’s credit reporting provision is meaningless.”
I asked for more clarification. Here’s what she said to me:
“The credit reporting provision in Section 4021 of the stimulus bill is weaker and more deficient than even the middling current industry practice for disaster victims. Not only does the credit reporting provision do barely anything to protect consumer’s credit records from the devastating economic effects of this crisis; it may end up harming consumers more than it helps.
“Section 4021 primarily protects consumers who are still current on their bills and who are approved for a forbearance, workout, or similar accommodation. For that narrow group of consumers, their accounts still will be reported as current. But consumers who do not receive a forbearance or accommodation from their creditor – or who are unable to get one before they fall behind — are out of luck. This group will include millions of people who are unable to reach their creditors because of long phone hold times, who are too overwhelmed by job losses or dealing with COVID-19 afflicted family, or whose creditors are heartless enough to tell them no. If a consumer does manage to get a forbearance or accommodation, but has already a missed payment because of job loss or illness due to COVID-19, the creditor will continue to report them as delinquent unless they manage to catch up during the forbearance period – hardly likely for consumers facing economic disaster.
“Furthermore, even when a consumer is able to obtain forbearance or other relief, Section 4021 does not require the creditor to report the natural disaster code currently recommended by the credit reporting agencies. This code prevents the account from being considered by credit scoring models.”
I also interview Jack Gillis, executive director of the Consumer Federation of America. He said it’s too late to change the CARES Act passed by the Senate early Thursday morning; so he’s asking Congress to take another crack at 14 important consumer issues that weren’t addressed by the bill. Unfortunately, Congress plans to leave Washington D.C. after the legislation passes, which Gillis called “an outrage…especially when we expect people working in grocery stores to show up at work.” You can hear the rest of my conversation with Jack by clicking play below.