Government Shutdowns and How They Affect CRAs

October 09, 2023

Recently, many worried that a government shutdown would significantly impact consumers and employers. While consumers may face financial difficulties, employers may struggle to continue hiring for open positions. These concerns have led many to wonder what problems a government shutdown causes for consumer reporting agencies (CRAs).

Unfortunately, no laws specify how CRAs must respond to problems caused by a government shutdown. Though the government has temporarily avoided a shutdown, the concerns have reached several U.S. Representatives. These Representatives co-sponsored a bill addressing these concerns. 

They would require financial regulatory agencies to release guidance encouraging financial institutions to protect consumers. The bill included the Financial Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB) to help reduce the impact of a government shutdown on consumers. 

Bill’s Requirements

The bill would direct the agencies to do the following:

  • “Recognize that consumers and businesses affected by a shutdown may lose access to credit and face temporary hardship in paying debts such as mortgages, student loans, car loans, business loans, or credit cards.
  • Consider prudent efforts to modify terms on existing loans or extend new credit to help consumers and businesses affected by a shutdown, consistent with safe and sound lending practices.
  • Take steps to prevent adverse information from being reported and utilized in any manner that harms consumers affected by a shutdown, including by preventing modified credit arrangements intended to help consumers fulfill their financial obligations from being reported to and coded by consumer reporting agencies on a consumer’s credit report in a manner that hurts the creditworthiness of the consumer.”

The Affected Entities

Although this law primarily affects financial institutions that have provided credit to consumers, it could involve CRAs cooperating with them. In such cases, they would help prevent harmful impacts on consumers’ credit reports due to credit arrangements made during a government shutdown. The law would also require regulators to share the guidance publicly.

This step would inform consumers, businesses, and financial institutions what is coming and what to expect within 24 hours of when a shutdown begins. Once the shutdown ends, they would have 90 days to provide Congress with a report analyzing the guidance’s effectiveness. It must also describe the steps taken to ensure the public and employers felt minimal impact.

This bill is not the first attempt to help those affected by a government shutdown. In 2019, five federal agencies and state regulators encouraged financial institutions to work with consumers affected by the shutdown. These agencies encouraged financial institutions to modify the terms of existing loans or extend credit to homeowners having difficulties.

At the time, the CFPB stated, “Prudent workout arrangements consistent with safe-and-sound lending practices are generally in the long-term best interest of the financial institution, the borrower, and the economy. Such efforts should not be subject to examiner criticism.”

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