Lenders Tighten Credit Requirements Amid New Reporting Rules


DISCLAIMER: As the COVID-19 public health situation evolves, new regulations are being continually issued. This page/story/information may not include the most recent information.

It’s a little harder for U.S. consumers to get credit as lenders retreat during the coronavirus crisis, The Wall Street Journal reported.

The major reason is that banks can no longer easily determine who is creditworthy.

“Banks are looking very carefully at their underwriting models to see if they need to be adjusted to factor in latent risk,” Robert Strand, senior economist at the American Bankers Association, told the WSJ.

As the unemployment rate reached nearly 15 percent last week and more than 40 million Americans are collecting jobless benefits, it’s likely that some are behind on their payments.

But the missed payments aren’t reflected in their credit scores and are not uniformly recorded on borrowers’ credit reports, the newspaper reported.

A provision in the CARES Act says that if a lender provides a forbearance on a mortgage, car loan or other payment, they can’t report them as late to credit reporting companies.

Data from TransUnion, one of the nation’s biggest credit bureaus, revealed that from March 1 through May, there were more than 100 million accounts on a deferred debt payment program, the newspaper reported.

As a result, the Federal Reserve Board said last week that the nation’s biggest U.S. banks could be saddled with as much as $700 billion in loan losses.

“Without accurate information, their only option is to pull back on credit,” Michael Abbott, head of banking for North America at consulting firm Accenture PLC, told the paper. “Banks don’t know who is going to pay and who isn’t. It’s like flying blind into a credit storm.”

By early April, 33 percent of banks told the Fed they had increased their minimum credit score requirements for credit cards over the previous three months, up from 14 percent in January.

Equifax Inc., another large credit bureau, said the number of loans has fallen. About 79,000 personal loans were issued for the week ending May 10, compared with 226,000 in the week ending March 22, a 65 percent dip as customers and lenders pulled back.

As car sales fell, so did auto loans and leases, to 266,000 from 390,000, nearly one-third lower during the same period. Credit card originations totaled 483,000, down from 856,000.

Fair Isaac Corp., the FICO score provider, said the company plans to launch an index that will appear next to loan applicants’ scores to predict how likely the applicants are to withstand financial difficulties during the downturn.

“It gives [lenders] that extra filter of how a person is going to handle an economic downturn,” FICO CEO William Lansing told the paper. “The increase in approvals will be more than the increase in rejections.”



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Michigan license number:   DM-0016282 Available to the public and licensed in Michigan.

Section 13(1)  When a licensee establishes a debt management plan for a debtor, the licensee may charge and receive an initial fee of $50.00

Section 13(2)  A licensee shall attempt to obtain consent to participate in a debt management plan from at least 51%, in number or dollar amount, of the debtor’s creditors within 90 days after establishing the debt management plan. If the required consent is not actually received by the licensee, the licensee shall provide notice to the debtor of the lack of required consent and the debtor may, at its option, close the account. If the debtor decides to close the account, any unexpended funds shall be returned to the debtor or disbursed as directed by the debtor.

Sec. 14. (1) A contract between a licensee and debtor shall include all of the following:

(a) Each creditor to which payments will be made and the amount owed each creditor. A licensee may rely on records of the debtor and other information available to it to determine the amount owed to a creditor.

(b) The total amount of the licensee’s charges.

(c) The beginning and termination dates of the contract.

(d) The principal amount and approximate interest charges of the debtor’s obligations to be paid under the debt management plan.

(e) The name and address of the licensee and of the debtor.

(f) Any other provisions or disclosures that the director determines are necessary for the protection of the debtor and the proper conduct of business by a licensee.

Sec. 18. (1) In addition to the fee described in section 13(1), a licensee may charge a reasonable fee for providing debt management services under a debt management plan. The fee under this subsection shall not exceed 15% of the amount of the debt to be liquidated during the express term of the plan.

(2) A licensee may offer a debtor the option to purchase credit reports or educational materials and products, and charge a fee to the debtor if the debtor elects to purchase any of those items from the licensee.  Fees charged under this subsection are not subject to the 15% limitation on fees described in subsection (1).

(3) Except for a cancellation described in subsection (4), in the event of cancellation of or default in the performance of the contract by the debtor before its successful completion, a licensee may collect $25.00 in addition to any fees and charges of the licensee previously received by the licensee. This $25.00 fee is not subject to the 15% limitation on fees and charges under subsection (1).

(4) A contract is in effect when it is signed by the licensee and the debtor and the debtor has made a payment of any amount to the licensee. The debtor has the right to cancel the contract until 12 midnight of the third business day after the first day the contract is in effect by delivering written notice of cancellation to the licensee. A cancellation described in this section is not subject to, and a licensee shall not collect, the fee described in subsection (3).

(5) If a debtor fails to make a payment of any amount to a licensee within 60 days after the date a payment is due under a contract, the licensee may, in its discretion, cancel the debt management contract if it determines that the plan is no longer suitable for the debtor, the debtor fails to affirmatively communicate to the licensee the debtor’s desire to continue the plan, or the creditors of the debtor refuse to continue accepting payments under the plan.

(6) A licensee shall not contract for, receive, or charge a debtor an amount greater than authorized by this act. A person that violates this subsection, except as the result of an inadvertent clerical or computer error, shall return to the debtor the amount of the payments received from or on behalf of the debtor and not distributed to creditors, and, as a penalty, an amount equal to the amount overcharged.

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