On May 15, 2020, the House passed the Health and Economic Recovery Omnibus Emergency Solutions Act, or “HEROES Act”, which is a 1,815-page bill that affords $3 trillion in relief to consumers and businesses impacted by COVID-19. The bill includes a number of provisions, including another round of $1,200 payments to most Americans, hazard pay for frontline workers, and funding for local and state governments. The bill also includes proposed amendments to the Fair Credit Reporting Act (“FCRA”). Unfortunately, these well-intentioned amendments to FCRA do not appear to have been thought through well and, practically speaking, would have dire consequences if implemented.
First, the bill prohibits both consumer reporting agencies (“CRAs”) or data furnishers from reporting of any adverse information that occurred during a “major disaster” declared by the President. With respect to CRAs, the bill states:
[N]o consumer reporting agency may make any consumer report containing an adverse item of information (except information related to a felony criminal conviction) relating to a consumer that was the result of any action or inaction that occurred during a covered period.
This raises the issue of causation. How would a CRA, or even a furnisher, know whether the adverse information was the result of the “major disaster”? This is particularly true where CRAs report bankruptcies, which may or may not have been the result of events that occurred during the “major disaster.” See Glenn Brown, Big FCRA Changes Ahead? HEROES Act Would Ban Reporting of Adverse Information During National Emergencies—But Is This Workable?, May 15, 2020, available at https://tcpaworld.com/2020/05/15/big-fcra-changes-ahead-heroes-act-would-ban-reporting-of-adverse-information-during-national-emergencies-but-is-this-workable/ (last visited 5/28/2020). Moreover, as lawyers know all too well, an event can result from more than one proximate cause. To what extent, then, did an “action or inaction” during a “major disaster” affect a particular event to result in adverse information?
FCRA requires CRAs to follow “reasonable procedures to assure maximum possible accuracy” when preparing a credit report. 15 U.S.C. § 1681e(b). But what procedures reliably could determine the causation of specific information? “[A]ccording to the Consumer Financial Protection Bureau, each of the nationwide consumer reporting agencies receive information from furnishers on over 1.3 billion consumer credit accounts or trade lines on a monthly basis.” Denan v. Trans Union LLC, No. 19-1519, 2020 U.S. App. LEXIS 14930, at *8 (7th Cir. May 11, 2020) (citing Consumer Fin. Prot. Bureau, Key Dimensions and Processes in the U.S. Credit Reporting System: A Review of How the Nation’s Largest Credit Bureaus Manage Consumer Data, 3, 14, 21 (2012), available at https://files.consumerfinance.gov/f/201212_cfpb_credit-reporting-white-paper.pdf. (last visited May 28, 2020)). Indeed, courts have declined to find CRAs liable for inaccuracies on this basis. See e.g. Brill v. TransUnion LLC, 838 F.3d 919, 921 (7th Cir. 2016) (affirming dismissal of suit challenging the accuracy of credit report because the creditor car lessor, not a consumer reporting agency, “was in a better position to determine the validity of its own lease”); Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1156 (9th Cir. 2009) (explaining “the furnisher of credit information stands in a far better position to make a thorough investigation of a disputed debt than the [consumer reporting agency]”). That being said, it is unclear how a furnisher would know that a missed payment or default was the result of something that occurred during a “major disaster.”
Second, the HEROES Act proposes a solution to this problem which, again, is entirely impractical. The HEROES Act would require the Consumer Financial Production Bureau (“CFPB”) to create a website on which consumers could report “economic hardship” as a result of a “major disaster.” In turn the three major CRAs would be required to check this website weekly and delete from their databases “adverse items of information as soon as practicable after information that is reported appears in the database.” But the consumer is only required to report “economic hardship” and not identify specific events resulting from such hardship. Therefore, a CRA would have no way of knowing which adverse items should be deleted. And the CFPB would be prohibited from requiring any consumer to produce documentation substantiating their claim of economic hardship. Such a prohibition opens the floodgates for consumers to fraudulently avoid negative credit reporting. Moreover, it would significantly impair a CRA or furnisher from establishing a defense to a FCRA action against it.
Third, as one commentator explained:
[T]he HEROES Act prohibits CRAs from reporting adverse items of information. That leads to some tricky situations. For instance, suppose a bank’s records show that in some months during the pandemic the consumer made payments on his outstanding credit card balance and in some months he did not. Under the HEROES Act, CRAs are not allowed to report the missed payments because they are “adverse items of information.” So the bank will furnish CRAs with payment history for only the months in which he made payments. How does the CRA then report that information without signaling that the consumer didn’t make the payment during the months not reported?
See Brown, Big FCRA Changes Ahead? HEROES Act Would Ban Reporting of Adverse Information During National Emergencies—But Is This Workable?, May 15, 2020 (hyperlinked above).
Fourth, FCRA authorizes debt collectors to access credit reports in connection with debt-collection efforts. 15 U.S.C. § 1681b(a)(3)(A). See also Hasbun v. Cty. of L.A., 323 F.3d 801, 803 (9th Cir. 2003) (“But the limited case law addressing this issue has uniformly held that creditors have a permissible purpose in receiving a consumer report to assist them in collecting a debt.”); Duncan v. Handmaker, 149 F.3d 424, 428 (6th Cir. 1998) (collection of a debt is considered to be the “collection of an account” within the meaning of § 1681b(a)(3)(A).). If CRAs are not allowed to notify debt collectors of a bankruptcy that arose from the pandemic (or any other “major disaster”), debt collectors may run afoul of the Fair Debt Collections Practices Act (“FDCPA”), 15 U.S.C.S. § 1692e, or the bankruptcy injunction under the Bankruptcy Code, 11 U.S.C. § 524.
Fifth, because the HEROES Act would frustrate the ability of CRAs to provide detailed credit information regarding consumers, and creditors may react by increasing the cost of obtaining credit. Creditors would be unable to make an accurate determination of risk if forced to consider that there could be adverse information that the creditor was prohibited from obtaining.
In short, compliance with FCRA during any major disaster would become virtually impossible, giving rise to a innumerable lawsuits. And the cost of obtaining credit likely would rise both as a result of creditors being unable to access detailed credit information and paying to defend a wave of litigation. This increased cost could prove an insurmountable obstacle to obtaining credit, meaning the bill as it currently exists actually may harm the very people it intends to help.
It has been projected that the Senate likely will reject the HEROES Act in its current form. Let’s hope that when the bill is revised, the proposed amendments to FCRA are removed. The Senate is not expected to issue its own reiteration of the bill until June.
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