While it’s true people drove fewer miles during COVID-19 quarantines, their vehicles — and the loans that they secure — are still vitally important. Unfortunately, many auto owners are facing pandemic-related economic hardships that make paying those vehicle loans especially difficult. If you’re a buy here, pay here (BHPH) dealer, hearing about customers’ financial difficulties is nothing new. However, the pandemic is presenting unprecedented challenges. It’s in your best interest to know how to respond when it comes to reporting payments, or the lack thereof.
Not reporting is not a good option
In April we shared detailed guidance on the credit reporting accommodations the March 2020 CARES Act extends. Section 4021 of the CARES (short for Coronavirus Aid, Relief, and Economic Security) Act offers specific reporting requirements for lenders who make accommodations for customers. Accommodations in the BHPH industry, for example, may include deferring payments, allowing partial payments, waiving late fees, or delaying repossession.
Several credit authorities, including the three major credit bureaus, the Consumer Financial Protection Bureau (CFPB), and the Consumer Data Industry Association (CDIA) made statements supporting the CARES Act allowances. These organizations have been consistent in other points, as well. Each recognizes COVID-based accommodations are not a requirement, but rather a decision each individual lender has to make.
Additionally, they all recommend that if you do decide to make accommodations that you absolutely report them. So one of the biggest questions auto lenders are asking, rather than whether they should report to the bureaus, is exactly how and what to report.
44, 45, or 58?
BHPH dealers, like other data furnishers, have three options when reporting COVID-19 accommodations to the bureaus. The CDIA explains each option within a specific Frequently Asked Question, or FAQ. Each FAQ provides exact guidance for reporting that status in Metro 2® format.
- FAQ 44: Deferred payment status, where payments are put off, or deferred, for a certain period of time, usually without accruing additional interest charges. Data furnishers would use Specialized Payment Indicator 02.
- FAQ 45: Forbearance, during which regular payments are temporarily postponed or suspended until a later time, although interest continues to accrue. Data furnishers would use Special Comment Code CP.
- FAQ 58: Deferred due to natural disaster, where you defer payments are specifically because of a natural or declared localized or national disaster. Data furnishers would use Special Comment AW, as well as Account Status Codes 11 (for a current account) or 71, 78, 80, 82, 83, or 84 (for delinquent accounts).
The step-by-step FAQ reporting instructions the CDIA provides for each scenario are clear and helpful. However, the confusing part for lots of BHPH lenders and other data furnishers is which status to choose.
Different strokes for different folks
In a recent webinar sponsored by DealerCenter, Datalinx’s Paul Haldi shared his advice for COVID credit reporting for BHPH dealers. Haldi reiterated that the CARES Act doesn’t impose requirements on whether or not to make accommodations. It also doesn’t limit the extent of accommodations you may offer.
In the video, Haldi also explains an important point some data furnishers may overlook — there’s really no definition for who is “affected” by COVID-19. “Affected” by COVID doesn’t necessarily mean they or a loved one are “infected” with the coronavirus.
This means you can offer CARES Act credit accommodations to anyone who COVID impacts financially due to job loss or other situations. There are hundreds (or maybe thousands) of scenarios you might have to consider. COVID won’t financially impact some people at all. These people don’t need accommodations.
This is why the CDIA, says Haldi, discourages “blanket changes to data.”
Each accommodation situation will have its own solution, and you should report each accordingly.
BHPH accommodation examples
The CDIA offers a number of great resources for any company or organization reporting credit with CARES Act accommodations. An Equifax/American Financial Services Association (AFSA) webinar entitled Reporting Automotive Loan Payments During COVID-19 Pandemic is a great resource. The webinar provides some excellent examples of considerations that are especially relevant to BHPH dealers.
Example 1: Your customer has been making on-time payments for six months but now can’t make their payment due to COVID-19. To help them, you could defer their payments and report the open account as deferred along with the AW (natural/declared disaster) code.
Example 2: COVID-19 complications have reduced your customer’s income. To help them, you could modify their loan terms to modify their payments, and report this with the CP forbearance comment code.
Example 3: An account was already in default before COVID-19, and the consumer is asking for accommodations. You’d still report the account’s derogatory status, but add the AW code.
Haldi points out that both VantageScore and FICO will treat accommodation codes as “neutral.” This will ensure there will be no negative scoring impact on these consumers.
Do you have questions for Paul Haldi or Datalinx about reporting credit to the bureaus? Datalinx is here to help! Reach out to us today to schedule a free consultation with one of our experts.
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