The CARES Act and Its Impact on Consumer Loans

On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), an emergency spending bill providing $2 trillion in relief to individuals and businesses who have or will suffer negative economic effects of the COVID-19 pandemic.

Credit Reporting

The CARES Act amends the Fair Credit Reporting Act by creating new reporting rules in those instances where a furnisher makes an  “accommodation,” which is defined as “an agreement to defer one or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or any other assistance or relief” granted to a consumer affected by COVID-19 during the covered period.  In turn, the amendment defines “covered period” as the period beginning January 31, 2020, and ending 120 days after the date of enactment or 120 days after the national emergency ends.  If a furnisher makes an accommodation for a consumer, the furnisher is required to report the account as current, although it is permitted to continue to report the account as delinquent if the account was delinquent before the accommodation was made, unless the consumer brings the account current during the covered period.  The reporting requirement does not apply to charged-off accounts.

Forbearance and Foreclosure of Federally-Backed Mortgage Loans

The CARES Act allows borrowers with federally-backed mortgage loans  to request a forbearance—regardless of the loan’s delinquency status—by submitting a request to the servicer and affirming that the borrower is experiencing financial hardship due to COVID-19.  Significantly, servicers may not require any additional information other than the attestation from the borrower.  Upon the submission of a proper request, the requested forbearance shall be granted for up to 180 days and can be extended for an additional 180 days.  During this forbearance period, interest, penalties, and fees (beyond the amounts scheduled as if the borrower made timely payments) may not accrue on the loan.

Additionally, under the CARES Act, servicers of federally-backed mortgage loans are prohibited from initiating any judicial or non-judicial foreclosure, moving for a foreclosure judgment or order of sale, or executing a foreclosure-related eviction for a 60-day period beginning on March 18, 2020.

Student Loans

The CARES Act includes several benefits to those paying federal student loans.  For one, the Act suspends student loan payments and interest on federal student loan payments through September 30, 2020.  At the same time, the Act requires federal lenders to report payments as current to consumer reporting agencies, even if the borrower chooses not to make payments through September 30, 2020.  Additionally, those seeking monthly payment credit toward loan forgiveness for public service will continue to receive such credit, even if they temporarily suspend payments.  Finally, the Act prohibits involuntary collection of student loans, including wage garnishment, before September 30, 2020.


The CARES Act amends bankruptcy procedures by allowing debtors to exclude federal aid received pursuant to the Act from income when filing new Chapter 7 or Chapter 13 petitions.  The Act also excludes such aid when determining the amount of the debtor’s disposable income when confirming a Chapter 13 plan.

The CARES Act also amends the Bankruptcy Code to allow for modifications to previously-confirmed plans, if income is lost due to COVID-19.  And Debtors with confirmed Chapter 13 plans are permitted to extend their payments under the plan for up to seven years.  However, these amendments will sunset one year after enactment.

Debt Collection

The original version of the bill included significant restrictions on collections, including prohibitions on actions to enforce or collect on any debt, charging late fees, suing or threatening to sue for nonpayment of debt, foreclosures, and repossessions.  While the CARES Act, as enacted, eliminated these restrictions on debt collection, it remains to be seen whether additional legislation regarding collections will be forthcoming.


The CARES Act offers significant relief to consumers and businesses alike, as the country navigates the economic effects of the COVID-19 pandemic.  While the prohibitions under the Act are largely limited to federal loans, it is important to be aware of any similar legislative action at the state and local level.  Burr & Forman will continue to monitor the rapidly-changing landscape as it relates to COVID-19 and provide updates as they occur.

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