Should the Feds Encourage Banks to Work With Customers Affected by a Gov't Shutdown to Avoid Undue Hardship? (H.R. 2290)

What is H.R. 2290?

(Updated October 6, 2019)

This bill — the Shutdown Guidance for Financial Institutions Act — would require federal financial regulators to issue a guidance that encourages banks and other financial institutions to work with consumers and businesses affected by a federal government shutdown to avoid undue financial hardship. This guidance would be provided to banks and other financial institutions no later than 24 hours after a shutdown starts. 

Specifically, this bill would require federal financial regulators, in consultation with state banking regulators and other appropriate federal and state agencies, to issue shutdown guidance encouraging the financial institutions they regulate to: 

• Work with consumers and businesses affected by a shutdown;
  
• Recognize that consumers and businesses affected by a shutdown may lose access to credit and face temporary hardship in making payments on debts such as mortgages, student loans, car loans, business loans, or credit cards;
  
• Consider prudent efforts to modify terms on existing loans or extend new credit to help consumers and businesses affected by a shutdown, consistent with safe-and-sound lending practices; and
  
• Take steps to prevent adverse information being reported and utilized in any manner that harms consumers affected by a shutdown, including by preventing modified credit arrangements intended to help consumers fulfill their financial obligations from being reported to, and coded by, consumer reporting agencies on a consumer’s credit report in a manner that hurts the creditworthiness of the consumer.
  

This bill would also require federal financial regulators to issue a joint report to Congress with an analysis of the effectiveness of the guidance issued and what steps financial institutions took during the shutdown no more than 90 days after a shutdown ends. 

Argument in favor

Although federal regulators have historically issued guidance encouraging financial institutions and banks to work with customers impacted by government shutdowns, they aren’t required to do so. This bill is needed to ensure that regulators continue this practice going forward in case of future government shutdowns.

Argument opposed

Since federal regulators have historically issued guidance encouraging financial institutions and banks to work with customers impacted by government shutdowns, there’s no need for this bill to mandate that they do so.

Impact

Federal workers affected by a government shutdown; financial institutions; and credit reports of federal workers affected by a government shutdown.

Cost of H.R. 2290

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Jennifer Wexton (D-VA) introduced this bill to require federal financial regulators to issue guidance encouraging banks and other financial institutions to work with consumers and businesses affected by a federal government shutdown: 

“I heard directly from one who was denied a mortgage due to a government shutdown she couldn’t control—and I knew there were many more stories like hers. Federal workers and contractors are expected to shoulder the financial burdens incurred from a government shutdown they can’t control or predict. I remain committed to doing everything in my power to prevent future government shutdowns, but given the actions of this administration and its disregard for  federal workers and contractors, I will continue to work to safeguard our federal workforce should a government shutdown occur.” 

Federal regulators have historically issued guidance to financial institutions encouraging them to work with federal employees affected by shutdowns. On January 11, 2019, the prudential regulators issued a joint statement providing guidance to financial institutions and encouraging them to help customers affected by the partial government shutdown. This guidance — issued on the twentieth day of the shutdown — was issued in response to a letter from Rep. Maxine Waters (D-CA) encouraging regulators to help customers affected by the shutdown. Similar guidance was issued on October 9, 2013, on the ninth day of that year’s government shutdown. 

A non-binding House resolution introduced by Rep. Maxine Waters (D-CA) expressing the House’s sense that financial institutions and other companies should work proactively with customers affected by the 35-day partial government shutdown passed the House by a voice vote on January 28, 2019.

Of Note: Rep. Wexton drafted this bill in response to correspondence from a furloughed federal employee whose mortgage application was denied during the 35-day partial government shutdown because the lender wrongly considered her unemployed and too much of a risk to finance. 

Around 800,000 federal workers missed two paychecks during the partial government shutdown. Many workers turned to loans to make ends meet — either through credit unions or via big banks. Others used personal loans, payday loans, credit-card cash advances, and 401(k) loans.

Of the overall situation workers found themselves in, Vox wrote:

“It is true that some banks and credit unions have devised loans specifically for workers affected by the shutdown and are waiving charges such as overdraft fees and interest charges. But lenders are working with clients on a case-by-case basis, meaning not everyone is getting the same deal. And workers are being forced to take on debt that they wouldn’t have had to otherwise.”

Leisyka Parrott, a furloughed Bureau of Land Management employee, summarized her situation during the shutdown thusly:

“I have the luxury that friends have loaned me one paycheck. The thing is when you get back pay, all the fees that you incur by missing payments – you don’t get paid back for those. If you are late for a payment and have a $25 fee, the government doesn’t pay for that.”

During the shutdown, Bankrate reported that there were no protections for furloughed government employees with regard to derogatory credit marks that they might accumulate during a shutdown. Bankrate reported that the Fair Credit Reporting Act (FCRA), the chief federal law that regulates credit reporting, didn’t have any provisions to protect furloughed government employees’ credit reports. Thus, if a furloughed government employee fell behind on their payments, there’d be nothing to prevent that late payment from showing up on a future credit report for up to seven years.

Over 16,000 federal workers filed for 0% interest loans through the Navy Federal Credit Union during the shutdown, which allowed them to receive advances on missed paychecks in amounts from $250-6000. Various major banks, including Bank of America, Wells Fargo, and Citi, also offered special programs for federal workers. Verizon also waived its late fees and agent assistance fees for federal workers.

Generally, one 30-day late payment shouldn’t cause lasting damage to credit scores, unless it’s part of a persistent pattern. A 60-day late payment would likely do more damage, and a 90-day late payment could hurt credit scores for seven years.

Media:

• Sponsoring Rep. Jennifer Wexton (D-VA) Press Release
  
• Washington Business Journal
  
• House Financial Services Committee Memo
  
• Countable (Related House Resolution)