Next Federal COVID-19 Response shouldn’t Threaten the Accuracy of Credit Reporting

The COVID-19 pandemic has significantly disrupted daily life all over the world and the United States. Not only are people getting sick, tens of millions of Americans are struggling with significant loss of income, either through business closures or layoffs. The federal government has so far enacted three legislative packages to cushion the financial blow, but it is likely more steps will be taken to weather the aftermath of the crisis. So even with the ink still drying on a $2 trillion stimulus package, it’s no surprise that lawmakers are already discussing “Phase 4” of the government’s response.
Presumably, House Democrats will use their 1,400+ page bill, introduced as an alternative to the CARES Act, as guidance or what the updated package should contain. Since their partisan legislation was packed with unnecessary, expensive, or dangerous provisions, a lot was left on the proverbial cutting-room floor, but Democrats might attempt to revive those disastrous policies for a Phase 4.
Taxpayers should certainly be concerned with the cost of any deal, but beyond outright spending hikes that add to the skyrocketing federal deficit, other provisions that appear to have little relation to federal expenditures deserve equally careful scrutiny -- such as how they propose to amend credit reporting laws during and after the pandemic.
Lawmakers should be cautious in their approach to amending credit reporting laws due to the unforeseen impacts it could have on consumers and government programs. Credit reports are an integral piece for companies to determine a person's individual credit score through consumer credit-scoring models. The use of credit scores is incredibly far-reaching and the credit report information  is used to help determine the likelihood that prospective borrowers will repay their loans.
Actuariate and complete credit reports are also the foundation of this country’s robust and competitive consumer credit market. Most, if not all, lenders rely upon credit history data found in credit reports to identify and evaluate potential risks a consumer may pose before entering into a financial relationship with that consumer. That information is critical for lenders to evaluate the applicant’s ability to repay and to make fair and appropriate credit decisions.
Unfortunately, tinkering with credit reporting processes, especially at a time like this, could have far reaching and troubling impacts on the market. By proposing to suppress all negative information associated with all credit obligations, credit reports will be incomplete and ultimately reduce the predictiveness of the credit scores. With less accurate consumer reports and scores, creditors will be inevitably forced to reduce the amount of credit extended and/or raise prices to cover for the additional risk. This will lead to a weaker financial system, undermining a great deal of safety and soundness that we have built up over decades. This will, in essence, socialize credit scoring and, therefore, credit allocation.
Worse yet, it could lead to more borrowers to be eligible for a taxpayer-backed mortgage by Fannie Mae and Freddie Mac, or insured by the Federal Housing Administration who may not be able to handle additional credit obligations. Under such a scenario, if more unqualified borrowers default on their mortgage, it could threaten the housing system and lead to another significant bailout of the GSEs. 
Lawmakers would be wise to exclude from “phase 4” legislation virtually all credit reporting language contained in the earlier Pelosi bill. Specifically, NTU has serious concerns with the following provisions:
Moratorium on Furnishing Adverse Information
Section 605(c) subsection (d) prohibits consumer reporting agencies from creating credit reports that contain any adverse information that occurred during the COVID-19 pandemic or any other major disaster. This moratorium could be in effect as long as 270 days after the end of the declared disaster period. 
Prohibiting Medical Debt be Included in an Individual's Credit File
Section 605(c) prohibits Credit Reporting Agencies (CRAs) from furnishing medical debt incurred as a result of the COVID-19 pandemic or any other declared major disaster. 
Suppressing accurate credit information from appearing on credit reports is extremely problematic. These provisions will harm consumers by reducing the predictive  information in credit reports and thus impacting credit scores. As a result,lenders would have to compensate either by charging higher interest rates or reducing the provision of credit. 
Additionally, the legislation contained other concerning provisions that lawmakers should also exclude from Phase 4: 
New Private Sector Mandates
Section 605 subsection (g) requires an individual’s credit report and credit score be made available upon request for free, up to 1 year after the end of the declared disaster. Today free credit scores and credit reports are already available to the public in a myriad of ways. Creating a new government requirement is simply unnecessary. Additionally, the language contains no cap on the number of times a consumer is eligible to request this information. Finally, their request must be fulfilled online no later than 15 minutes after they submit a request.
Preventing Companies from Implementing New Credit Scoring Models During Disasters
Section 630 states that during any declared major disaster, no company may create, implement, or revise a credit score model if it leads to a “significant” percentage of consumers from being less creditworthy compared to other models. This is an unnecessary provision that serves no useful purpose and will only delay the benefits derived by lenders and consumers of updated and more accurate credit scoring models from coming to market.
Instead of government forcing certain information to be censored, a more efficient approach would have individuals directly work with their lenders about payments as they will likely have procedures in place to work with customers impacted by this unique health emergency. Congress should find other, more transparent ways to aid those whose credit scores have been adversely affected by COVID-19 rather than suppressing data and therefore undermining objective, accurate credit reports and scoring models that help the credit system to function in bad as well as good times. 
As Congress and the administration continue to respond to the imminent public health threat they must balance the conflicting needs of emergency responsiveness, fiscal responsibility, and economic vitality. However, Congress shouldn’t pass legislation that will erode instead of enhance the predictability of credit reporting. Though these provisions may be well-intentioned, they will make credit reports less accurate and credit scoring less predictive. The result will unfortunately  weaken the underwriting process, increase borrower’s costs, endanger taxpayers, and reduce people’s ability to access credit.