MBA, Trade Groups Ask Congress to Avoid Adding New Credit Reporting Provisions
The Mortgage Bankers Association and other industry trade associations asked Congress to refrain from adding new credit reporting provisions that may negatively affect consumers as Congress considers new COVID-19 response legislation.
In a letter to Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Ranking Member Sherrod Brown, D-Ohio, MBA, the Independent Community Bankers of America, the U.S. Chamber of Commerce and others said the Coronavirus Aid, Relief and Economic Security Act “CARES Act” signed into law in March established requirements that are “appropriately calibrated” to protect consumers and preserve the long-standing benefits derived from credit reporting. “Reliable credit reporting serves consumers well, enabling lower-cost and more expansive access to credit,” it said.
The CARES Act established protocols to protect consumer credit, the letter said. “Under the CARES Act, consumers who receive short-term payment relief and were current on their loans when they requested assistance continue to be reported as current. The CARES Act did not suppress or delete credit reporting or scoring. Instead, the CARES Act ensures that consumer financial information remains available to lenders and protects the credit profile of consumers receiving payment relief.”
The CARES Act also took steps designed to help consumers avoid the hardships that could impair their credit in the first place, with various forms of financial assistance intended to help cover household expenses during the shut-down periods implemented throughout the nation, the letter noted.
Pending legislative proposals to prohibit the reporting of credit information during the COVID-19 crisis would be a dramatic departure from proven practices and from the CARES Act’s approach, reversing policymakers’ historical commitment to the reporting of accurate credit information, the letter said.
“Such a change would harm consumers–especially low and moderate-income consumers,” the groups told the committee. “Positive consumer credit decisions, with responsible payment suspension followed by repayment arrangements or approved payment deferrals, would be removed from the reports altogether. The removal of multiple records simultaneously could disrupt the ability to generate any report or scores at all, to the detriment of the consumer. With no credit score, credit analysis by lenders is more difficult, increasing the risk of inconsistency in credit decisions. Insufficient payment information may lead lenders to make unnecessarily conservative credit decisions, which would result in fewer loans, reducing overall access to credit nationwide.”
In addition, to account for the uncertainty created by the unnecessary removal of credit information, loans would increase in cost, thereby reducing affordability, the letter said. “At the same time, the key institutions that help make credit available would pull back, again diminishing access to credit and increasing the cost of credit. These outcomes would be disruptive to the market and harm the financial well-being of consumers,” it said.
The groups urged Congress to retain the CARES Act provisions as currently implemented. “We share your objective to assist families and individuals affected by the COVID-19 crisis and to take the necessary steps to advance the recovery of the nation’s economy,” the letter said.