The Business Council of New York State, the state’s leading statewide business and industry association, opposes this legislation that would amend the general business law to prohibit a consumer reporting agency from reporting certain adverse information caused by the novel coronavirus pandemic.
This bill would mandate a suspension of credit reporting of “adverse information” for residents of New York State upon petition by consumers from March 7, 2020 (date of issuance of Executive Order 202 regarding the COVID-19 pandemic) through 90 days after the end of the declared state of emergency. Affected persons would be authorized to contact the consumer reporting agency (CRA) and request the agency disregard any “adverse information” with proof of hardship. The agency and New York State Department of Financial Services (DFS) would have five days to respond.
This bill, while well intentioned, would run counter to measures already employed by lenders and creditors, lacks operational clarity, and is preempted by the federal Fair Credit Reporting Act (FCRA). In fact, industry experts inform us that changes sought under this bill could negatively impact consumers and create confusion for both CRA and DFS.
First and foremost, we believe this proposal would be preempted by federal law. The FCRA has been held as preempting state laws that attempt to regulate activities which the FCRA expressly regulates: the subject matter within a consumer report. Further, the FCRA establishes a national standard for the content to be covered in consumer reports. Since the materials that would be covered by this state law (notations on consumer disputes, etc.) are specifically covered by federal law to ensure a national standard, the FRCA is preemptive.
Additionally, it should be noted that lenders and creditors have programs in place such as forbearance and deferred payment plans to assist consumers undergoing hardship due to disasters. In a related vein, credit agencies employ a system of codes that appropriately score and minimize the impacts of disasters on consumer credit. Score modelers also have a system designed to minimize forbearance and deferred payments for consumers. Changing this system under this proposed law would suppress credit reporting, impact accuracy and completeness, and put at risk the long-established credit history of individual consumers. This could lead to less availability of credit and possibly higher interest rates for consumers.
Finally, the bill lacks clarity. The definition of a key term in the bill, “adverse information,” is very vague and broad. The interpretation of this term could include almost anything related to the COVID-19 pandemic whether or not it has any impact on the consumer directly, even though it could serve as trigger to seek redress for all credit issues. Likewise, it should be noted that the five-day reporting mechanism would impose an immediate and significant impact on both the credit reporting agencies and the state oversight agencies. These entities must develop a secure and encrypted system to handle the new consumer inquiries, share sensitive and proprietary information between consumers and their lenders, and, bear an enormous financial responsibility for handling this new personal financial information safely and securely.
For the above reasons, The Business Council opposes this legislation.