CFPB Guidelines: Credit Disputes During COVID-19
As COVID-19 continues to reshape reality for the world, consumers and the businesses they rely upon are navigating the economical fallout from mandatory lockdowns and social distancing guidelines implemented by state and local governments. Not to be left unscathed, the debt collection market has seen significant impacts and made adjustments to the new guidelines put out by the Consumer Financial Protection Bureau (CFPB) in order to stave off delinquency reporting of consumers who've fallen behind on payment obligations due to the pandemic.
Why Did the CFPB Adjust their Guidelines?
Due to the pandemic, the negative impact on consumers and their financial health has snowballed into a major economical struggle on an unprecedented level. Because of this, the CFPB put out new guidelines to encourage flexible payment options--such as deferment, in an effort to avoid a potential freeze in the credit markets as businesses look to resume further operations in the upcoming months. However, this would mean consumers are actually back to work, feel confident enough to spend again, and can catch up on their delayed payment obligations to creditors.
What Are Some of the New CFPB Guidelines?
Besides asking creditors to show more flexibility with consumer payment accounts impacted by COVID-19, the CFPB has recognized credit reporting agencies (CRAs) and furnishers alike are also struggling to meet dispute deadlines and guidance. This is a direct result of the pandemic affecting resources such as staffing and hours of operation.
In addition, the CARES Act requires CRAs to report consumers as current on loans if they have sought relief from lenders because of negative pandemic impacts on their financial health. The CFPB allows furnishers and CRAs to accurately report a consumer’s credit status so long as information regarding their associated relief situation is notated.
How Does this Impact Data Furnishers?
Overall, the pandemic has negatively impacted the data furnishing sector worldwide, especially in needing a more available workforce to process disputes. This situation has resulted in delayed responses to Automated Credit Dispute Verifications (ACDVs), which then result in “did not respond” on the affected disputes.
To ease this burden, the CFPB has allowed some flexibility for creditors and CRAs in the deadlines for credit dispute investigations. Typically, the FCRA demands that furnishers and credit agencies complete the investigation process within 30 days of receiving a dispute, but this period now may last up to 45 days if new information from the consumer is submitted to the investigating organization in that first 30 days.
Debt management companies and law firms representing consumer rights in these matters may find this frustrating since the CFPB will not take adverse action against reporting firms that miss this deadline. Additionally, data furnishers and CRAs are receiving reminders about statutory provisions that would allow them to avoid disputes that are irrelevant or unnecessary.
Why Does the CFPB Think Debt Dispute Numbers are on the Rise?
With the millions of Americans out of work or only receiving partial hours, their paychecks are unable to meet typical everyday living costs like utilities, rent or even food. This situation adds another competing factor to consumer money woes: credit debt.
In addition to these monetary impacts, the CFPB recognizes other factors spurred by the pandemic are causing debt dispute cases to rise, including:
Consumers are Watching their Credit Scores more Carefully
American consumers are keenly aware of the dangers to their credit scores during the pandemic-induced financial crisis the country is experiencing. With easy access to credit reporting, some of which are free once a year, consumers are becoming more vigilant about mitigating any damage from late or missed creditor payments, or even from fraudulent charges.
Increased COVID-19 Related Medical Debt
Medical care for treating the coronavirus has an estimated average price tag of $30,000 for patients. This reality has added a double-whammy to families already struggling to survive financially after massive job cuts and reduction in hours throughout nearly every market sector. For the households that couldn’t afford this level of an expense, they will likely add these medical costs onto their debt and try to negotiate more affordable rates.
Increased Credit Card Usage
The pandemic (touching, handling, paper transactions) has made cash a thing of the past for even the smallest of transactions, which typically involve purchases of $10 or less. This increased use of credit cards, thanks to social distancing requirements and limited shopper capacities in stores, has also caused a spike in disputes percentages. Since investigating these incidents costs valuable resources and payroll, CRAs are struggling to find more efficient dispute management processes.
Credit disputes in today’s post-pandemic market have presented new challenges for consumer rights and debt collection management with the CFPB adjusting guidelines for credit dispute procedures. While dispute numbers are on the rise, this increase can be interpreted to consumers paying better attention to their credit usage, statements and potential for fraud-- in addition to the pandemic stretching financial budgets thin. Looking forward, agencies such as the Consumer Financial Protection Bureau (CFPB) will need to remain diligent in updating guidelines, ensuring a safe and secure financial recovery for consumers and businesses alike.
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