Disaster Flags: Credit Reporting Relief from Natural Disasters

Abstract

I study the use of ``disaster flags'' applied to credit reports to provide relief to consumers affected by natural disasters. Between 2010 and 2020, 59 million consumers have a disaster flag on their US credit report. Flags tag a riskier subset of consumers' tradelines exposed to disasters and temporarily mask defaults on credit reports. Consumers with pre-disaster financial distress experience the largest, but temporary, VantageScore credit score increases from flags. Flags do not increase credit access. Counterfactual policies offering more relief by comprehensively masking all defaults during disasters appear proportionate with limited informational loss to lenders.

Keywords: Climate Finance, Consumer Financial Protection, Credit Information, Disaster Flags, FEMA, Household Finance, Natural Disaster, Social Insurance

JEL Classification: G51, G52, G28, H84, Q54