Defer payment during the crisis? Stay vigilant

If you’re among the hundreds of thousands of Canadians who were granted a payment holiday for mortgages, credit cards or other loans in recent months, do yourself a favour and double-check your credit report.

The COVID-19 crisis is exposing flaws in the information-technology systems used by some financial institutions and other lenders. Deferred payments shouldn’t hurt a person’s credit standing. But many companies are discovering their aging computer systems can’t automatically record and relay details about those special payment arrangements to the two major credit bureaus.

Although Equifax and TransUnion have reporting standards for deferred payments and created workarounds for companies that are unable to tweak their own systems, some of those fixes are manual and there are still plenty of opportunities for information to fall through the cracks.

Neither the credit bureaus nor regulators seem to know how many Canadians may have had their credit scores inadvertently damaged by reporting hiccups during this crisis. More importantly, none will guarantee that no mistakes were made. Since screw-ups also happen during good economic times, Canadians should verify deferred-payment details on their credit reports and remain vigilant about the accuracy of their data.

“We knew that there were enough lenders that needed help with the data,” said Julie Kuzmic, director of consumer advocacy at Equifax Canada Co., adding the two credit bureaus worked together to create reporting standards for lenders.

Equifax also held some consumer information for verification, Ms. Kuzmic said. But ultimately the onus is on financial institutions and other billers to flag problems with their data. “It is up to lenders to decide how they’re going to report accounts to credit reporting agencies,” TransUnion states on its COVID-19 information page.

That also places the burden of verification on consumers. Mathieu Labrèche, a spokesman for the Canadian Bankers Association (CBA), wrote in an e-mailed statement: “Many banks have put in place processes to proactively inform credit agencies that a deferral is not equivalent to a missed payment for the duration of the forbearance period.” However, he stopped short of assuring that all had done so. By the CBA’s own reckoning, more than 736,000 Canadians were granted mortgage deferrals or the option to skip a payment as of June 17. There were also more than 443,000 credit-card deferral requests. Processing that volume of data when many employees are working from home (and tending to children) creates huge scope for errors.

The COVID-19 crisis is also revealing regulatory blind spots. While the Financial Consumer Agency of Canada (FCAC) and other federal regulators are monitoring how banks implement consumer-relief measures, they don’t oversee how that account data is used by credit bureaus. (Credit bureaus are provincially regulated.)

Consumers cannot afford to be complacent. Incorrect information about deferred payments can depress your credit score, impairing your ability to borrow money down the road. Errors are particularly damaging for those with shorter credit histories, including young adults and new immigrants.

“Every Canadian is entitled to get their credit report for free as often as they want,” Ms. Kuzmic said.

It’s worth doing and then disputing any incorrect information – whether it’s about deferred payment arrangements, unauthorized accounts or even errors in your address or telephone number. It can take time for credit files to be updated and a variety of factors influence your credit score, so checking once is not enough. You’ll also have to contact each credit bureau separately and your lender to correct any mistakes.

Equifax and TransUnion are offering consumers advice on how to verify deferred payments on their credit files but their instructions vary:

- Under Equifax’s system, the affected account will have accompanying comments such as “deferred payment” and/or “affected by natural or declared disaster.” The account status should state “paid as agreed and up to date,” while the payment amount and past due amount should be “$0″ or “not available,” according to its website. Consumers should also review the account’s rating, which is a letter and number combination. The letter denotes the type of loan – for instance, “M” means mortgage – but the number that follows for deferred accounts should be “1″ because that means the account is being paid as agreed, Ms. Kuzmic said.

- TransUnion, meanwhile, says deferred accounts should have the letter “D” in the “terms field” of its consumer disclosures. “Depending on the type of service the consumer uses, the [credit] score may not be updated on the same frequency. With some services, score and data could be updated daily, weekly or monthly, causing the perceived discrepancy in score. Additionally, different services may be using different credit scores,” spokeswoman Katie Duffy wrote in an e-mail.

Confused? You’re not alone.

There ought to be more consistent consumer disclosures since there are only two major credit bureaus operating in Canada. Provincial regulators should also make it easier for consumers to correct errors. For instance, it should be mandatory for companies to verify disputed customer information in a timely manner. Sometimes when credit bureaus make such queries, they don’t receive a response, Ms. Kuzmic said.

There are also other common-sense fixes. The FCAC, for instance, should oversee how credit bureaus use consumer account data generated by federally regulated banks. It makes no sense to task the FCAC with educating consumers about credit scores and credit reports, if it has no role supervising credit bureaus.

Surely there’s a way to improve oversight and simplify credit reports. Mistakes happen. Consumers need an easier way to spot and correct them.