Thursday, 26 December 2024
Bank and credit union regulators signal concern about government shutdown
In a sign that concern is mounting over the 21-day federal government shutdown, bank and credit union regulators asked U.S. financial institutions to work with customers impacted by what will become the longest government shutdown in U.S. history. Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), and the Consumer Financial Protection Bureau (CFBP) stated that “While the effects of the federal government shutdown on individuals should be temporary, affected borrowers may face a temporary hardship in making payments on debts such as mortgages, student loans, car loans, business loans, or credit cards.”
Federal Reserve Chair Jerome Powell speaking at the Economic Club of Washingtion, stated that "In the short term, government shutdowns don’t last very long. They typically have not left much a market on the economy, which isn’t to say there’s plenty of personal hardships that people undergo." He also warned that “A longer shutdown is something we haven’t had. If we have an extended shutdown, I do think that would show up in the data pretty clear.”
It is not the first time that regulators have encouraged financial institutions to consider efforts to modify terms on existing loans or extend new credit to aid affected borrowers. The last time that regulators made this request was in 2013 using the exact same language as they did this afternoon.
Of course, regulators reminded financial institutions that any arrangements that they make with adversely impacted borrowers should be “consistent with safe-and-sound lending practices” and “generally in the long-term best interest of the financial institution, the borrower, and the economy.” Given the extraordinary circumstances, “such efforts should not be subject to examiner criticism.”
Given the stature of these regulators, I am hopeful that financial institutions will do everything in their power to help federal workers and contractors affected by the government shutdown. It is estimated that about 800,000 federal workers have not been paid in three weeks. Exact numbers on how many contractors have been without pay are harder to come by; some estimates are that there are over 4 million persons who contract with the federal government.
Fortunately, some financial institutions such as Chase and Bank of America , as well as Capital One and Wells Fargo have voluntarily been working with their customers on a case-by-case basis. Others, such as Launch Federal Credit Union and Huntington Bank are waiving fees and offering low-interest loans to government workers affected by the shutdown. A number of credit unions and mortgage lenders such as Quicken Loans are also providing assistance for mortgage borrowers. Given that about 40% of Americans cannot afford to cover a $400 emergency, timely aid from financial institutions is critical.
Re-disseminated by The Asian Banker from Forbes
