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The Business Council opposes S.2106-A (Sanders) / A.4618 (Wright), which would require banks to inform a lendee of any consequences to their credit score when the bank has agreed to an alternative payment schedule.
Credit bureaus are generally regulated by the Fair Credit Reporting Act (FCRA), a federal law that regulates credit reporting agencies and compels them to insure that the information they gather and distribute is a fair and accurate summary of a consumer’s credit history. The law has been amended several times over the last five years to better protect consumers.
Lending institutions will sometimes voluntarily arrange alternative payment schedules with a customer, who is in default or at risk of default of a loan. Often this occurs after an event that would be reportable to a credit bureau. The alternative payment schedule allows a lendee to maintain the loan and keep their collateral without the contemplation of preservation of a particular credit rating.
This legislation would obligate banks to inform customers of any consequences to their credit score when the bank and customer have voluntarily agreed to an alternative payment schedule for the benefit of the customer. This requirement is not only administratively burdensome but it is a nearly impossible burden for a lender.
The consequences of a default on a loan are determined by the credit rating bureaus as regulated by FCRA, rather than the banks. Each credit agency uses a slightly different formula and every customer’s credit history is different, thus every outcome to every default is different from the next. Banks and other lending institutions lack the capacity to fulfill the requirements of this legislation. Therefore, any attempt to educate a lendee about their credit score would be more appropriately aimed at the credit agencies and their regulators.
For these reasons, The Business Council respectfully opposes S.2106-A (Sanders) / A.4618 (Wright).