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Best Practices in Credit Reporting Coding In Disaster Scenarios

Below is an article written by Jenn Reid at Equifax that offers important information on customer credit for dealers/F&I and lenders. I wanted to pass along to my dealer network here so they could benefit from the information.

Given the unprecedented climate that has taken place resulting from the COVID-19 outbreak and containment efforts, we have received a large number of questions in regards to how this event impacts credit reporting particularly given the recent support from the lending community around payment deferrals, loan modifications, etc. We wanted to share some important resources and guidelines from the Consumer Data Industry Association (CDIA) to help industry professionals navigate through these very important days and weeks ahead.

It is important to remember that the credit reporting industry has long had codes in place to assist consumers impacted by a natural or declared disaster or other financial hardship. The industry strongly encourages lenders and creditors, also known as “data furnishers”, in working with their customers to take full advantage of these codes and report these codes to the credit reporting agencies (CRAs). The leading score modelers, VantageScore and FICO, treat these codes as neutral so there should be no negative scoring impact on consumers who are reported to the CRAs with these codes.

Specific Codes Apply to Certain Consumers

There are specific codes linked to certain accounts that are emphasized in any disaster-type situation, such as the current pandemic, and it is important that lenders and creditors understand the distinctions and characteristics for each. For quick reference, customers listed with an account code “58” are affected by a natural disaster, whereas customers with an account code “45” have an account in forbearance.

If lenders report using the recommended FAQ 58 or FAQ 45 guidance and report special comment AW or CP, consumers' credit scores may be affected differently.

Forbearance versus Deferred Payment

The country's leading score developers, VantageScore and FICO note that forbearance and deferred payment scenarios have a neutral impact on a consumer's credit score so consumers in one of these programs, as reported to the nationwide credit bureaus, should have no negative impact as a result of Coronavirus.

FICO noted:

"The placement and reporting of an account in forbearance or a deferred payment plan in and of itself does not negatively impact a FICO(r) Score. VantageScore makes clear that ‘[a] loan placed in a deferred payment or forbearance plan will not result in a negative impact.’ The same is true for a natural disaster coding: ‘[t]he net impact is that a consumer's VantageScore credit score will not go down, either because negative information is neutralized because of the natural disaster.’"

CARES Act Relief for Automotive

In addition, the automotive industry is hoping to benefit from an additional relief package from the government, known as THE Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allows

businesses with 500 or fewer employees to apply for a Paycheck Protection Program (PPP) or the Economic Injury Disaster Loan Program (EIDL).

Additional program features and benefits include:

  • $300 billion in small business interruption loans for paid sick or medical leave, employee salaries, mortgage or rent payments, utilities and any other debt obligations.
  • An opportunity for small business borrowers to obtain loan forgiveness equal to their payroll cost and costs related to debt obligations from March 1 through June 30, 2020.
  • Delaying payment of employer payroll taxes, relaxing limitations on a firm’s use of losses from prior years, and other tax relief to help dealers keep employees on the payroll.

The automotive industry is currently rallying in support of one another to help everyone across the value chain – dealers, lenders, OEMs, and service providers alike. The unexpected circumstances surrounding the current pandemic has forced employees and customers to stay in their homes, drastically reducing showroom traffic and transactions.

Our hope remains to offer as much insight and education as possible to help all parties involved in automotive during these trying times.

Editor’s Note: Jennifer “Jenn” Reid is Vice President – Automotive Marketing & Strategy Leader – U.S. Information Solutions (USIS). With nearly two decades worth of experience in automotive on dealer, lender and information services sides, Reid is responsible for the development of Equifax’s automotive growth strategies, as well as overseeing specific marketing plans and initiatives. This includes understanding competitive automotive industry market dynamics and trends, key customer insights, new product innovations, and pricing and channel strategies.

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