Cuomo Calls for Safeguards on Credit Scores of Sandy Victims

New York Gov. Andrew Cuomo is calling on the nation's consumer credit rating agencies to refrain from lowering the credit scores of people who took a financial hit from Hurricane Sandy.

Fico (FICO), Experian (EXPN), Equifax (EFX) and TransUnion also are being asked to reset any scores they lowered already, to flag information from storm victims that could soil their scores and to meet with regulators with the goal of resolving how to prevent scores from being damaged by future disasters, the state's Department of Financial Services said Thursday.

"Hitting Sandy victims with an unfair black mark on their credit scores would add insult to injury for the thousands of New Yorkers fighting to rebuild and recover after this devastating storm," Cuomo said in a press release. "The credit reporting agencies must take swift action so that Sandy victims don't have their credit scores unjustly tarnished."

Credit reporting agencies derive credit scores from borrowers' records of repaying their debts. Each of the agencies uses a formula developed by Fico to come up come up with its own version of the score, which aims to predict a borrower's credit risk.

Hurricane Sandy, which struck the Northeast region in October, caused homeowners and businesses in the storm's path to miss mortgage payments, borrow money they needed to rebuild or take other steps that could checker their credit histories, according to the department.

State officials have received roughly a dozen complaints from people who say their credit scores were dinged unfairly because of circumstances stemming from Hurricane Sandy, according to a source familiar with the matter.

In a news release, Superintendent Lawsky said that black marks on a credit report "can mean higher costs for a mortgage, a car loan, or a small business loan for many years in the future — pinching the budgets of Sandy victims who are already struggling to rebuild and recover.

"Even worse, some Sandy victims could get shut out of the job market since many employers screen and deny applicants based on blemishes in their credit histories — regardless of whether that blemish is an error by their bank or occurred through no fault of the applicant's own."

The credit agencies say they have safeguards in place to prevent natural disasters from setting back people's scores. Lenders can use a code the agencies developed after Hurricane Katrina in 2005 to flag parts of a borrower's history that tie to natural disasters so that future creditors can take that information into account, the Consumer Data Industry Association, or CDIA, a trade group, said Thursday in a statement. Lenders that choose to forbear from collecting on a loan because of a storm also can report their decision to the credit agencies and maintain the loan as current, the group said.

The association said that since Sandy it has twice notified roughly 8,000 banks, credit card issuers and other lenders of the code and their ability to tell the credit agencies of their decisions to forbear.

"Only a lender can choose to put a loan into forbearance," Norm Magnuson, CDIA's vice president of public affairs, said in the statement. "Only a landlord can choose to forgive a consumer's delinquent rental payment. Only a credit score developer controls how a credit score analyzes data."

Fico spokesman Anthony Sprauve said in an emailed statement that the company sympathizes with Sandy's victims and "would be happy to discuss with state Superintendent Lawsky, lenders and consumer reporting agencies how best to address the continuing financial challenges faced by victims of that disaster."

A TransUnion spokesman referred an inquiry about Lawsky's letter to CDIA's statement. Spokespeople for Experian and Equifax did not respond immediately to a request for comment.

The warning on credit scores continues a series of steps by the governor to protect New Yorkers in areas hit by Sandy from further hardships. The governor recently demanded that Fannie Mae and Freddie Mac take steps to ensure that homeowners who received a reprieve from paying their mortgages after Sandy are spared a sharp uptick in their payments. In March, Cuomo charged that 10 banks and mortgage servicers had been slow to process insurance payouts due Sandy victims.