How to Handle Payment Deferral Conflicts

In response to the global economic downturn, many individuals experienced financial hardships. To help navigate this challenging time, creditors extended various forms of relief. For those with mortgages or car payments, deferral plans were commonly offered or available upon request. These plans allowed borrowers to skip payments temporarily, with the missed payments typically being tacked onto the end of the loan term, albeit with potentially additional interest.

One of the primary benefits of these deferral programs was the waiver of late fees and penalties for missed payments. Additionally, assurances were made that participating in these programs would not negatively impact one’s credit score. However, numerous individuals are now encountering adverse effects from these deferrals. Reports abound across financial blogs of declining credit scores, incurred missed payment penalties, and instances where deferred payments are being pursued by collections agencies.

Let’s kick off with some positive news: you do have several options, many of which are thanks to the CARES Act. Enacted in April 2020, this legislation aimed to alleviate the financial strains resulting from quarantine mandates. Under the CARES Act, if you’re under a deferral plan, your lender is prohibited from reporting missed payments—provided your account wasn’t delinquent before.

However, financial institutions are currently grappling with overwhelming volumes. With reduced staff and a surge in customer inquiries, errors are inevitable. Despite the CARES Act safeguards, there’s a possibility that your lender’s systems might have erroneously reported missed payments due to the hurried implementation of the new regulations.

We understand the frustration, but staying calm and composed is key. While you can rectify the situation, it will require time and patience. However, patience shouldn’t be mistaken for passivity—it won’t resolve the issue on its own. You must take proactive steps.

Begin by contacting your lender, whether it’s for a personal loan, mortgage, or car payment. Get clarity on the following:

  • Were my requested payment deferrals successfully implemented?
  • Have you reported any late or delinquent payments, either manually or automatically?
  • Will you notify the credit bureaus to rectify these errors?
  • What’s the estimated timeline for correcting these mistakes on my credit report?

Additionally, ensure you obtain copies of any pertinent documentation. It’s advisable to request written confirmation from your lender confirming that your accounts are indeed deferred and not delinquent. This documentation may be necessary to demonstrate to the credit bureaus that an error occurred. Speaking of which, your next step is to contact the credit bureaus.

Take the initiative and don’t wait for your lender to act on your behalf with the credit bureaus. Contact the credit bureaus directly as soon as you detect any inaccuracies. In the United States, the major bureaus are TransUnion, Equifax, and Experian. The sooner you alert them to any errors on your credit report, the sooner they can begin rectifying them. If you possess documented evidence from your lender, such as a written deferral agreement or confirmation of your non-delinquent status, it will significantly aid in the resolution process.

While this advice may not provide immediate assistance, it underscores an essential point. Many Payment Deferral plans may not be as beneficial as they initially appear. Therefore, it’s crucial to thoroughly comprehend the terms before agreeing to any such arrangement. Some programs, for instance, might offer to waive three months’ worth of mortgage payments. However, the stipulations may require you to repay all missed payments in a single lump sum at the end of the 90-day period. This arrangement isn’t very helpful if you’ve lost your job due to COVID-19. Additionally, other deferral programs may continue accruing interest or attempt to recoup the missed revenue later in the loan term.

Nonetheless, this doesn’t mean that deferral programs are entirely devoid of benefits. For instance, you might secure a six-month deferral on your mortgage, saving you $5,000 in payments. However, the accrued interest during those six months will still be added back to your principal. Consequently, when it’s time to renew your mortgage, you may find an additional $2,500 in principal. While it may not equate to six months of payment-free living, it can still offer some relief if you’re facing financial difficulties.

First and foremost, try not to take things personally. It’s highly improbable that your lender intentionally aims to complicate your life by misreporting your deferred payments or labeling your accounts as “delinquent.” More likely, it’s a result of the overwhelming workload and potential errors in the reporting process due to the high volume of customer service requests.

The silver lining is that the law is on your side. Thanks to the CARES Act, you’re protected from facing financial penalties for deferring your loan payments. While maintaining a calm and rational demeanor as you navigate through the bureaucratic maze is always beneficial, persistence is key. These errors seldom resolve themselves without intervention. Always bear in mind that nobody can advocate for you better than yourself. Therefore, arm yourself with all the necessary documentation, keep your phone charged, and prepare to spend some time on hold. The effort will undoubtedly pay off in the end.