Should the House Call On Banks to Work Proactively With Clients Affected by the Gov’t Shutdown? (H. Res. 77)

What is H. Res. 77?

(Updated September 2, 2019)

This resolution would express the sense of the House that financial institutions and other companies should work proactively with their customers who’ve been affected by the federal government shutdown, and who may be facing short-term financial hardship and long-term damage to their creditworthiness due to the shutdown.

As a simple resolution, this non-binding bill wouldn’t advance beyond the House if passed.

Argument in favor

Federal employees who were affected by the partial government shutdown were put into tight financial positions through no fault of their own. Since this was a bad situation they couldn’t control, these people shouldn’t face credit downgrades resulting from the shutdown and the House asking banks to work with them is helpful.

Argument opposed

Banks & credit unions were already working with impacted clients and given that the government shutdown was 35 days, and a single 30-day late payment shouldn’t impact most people’s credit scores, most federal employees shouldn’t see damage to their credit scores. This bill is a non-binding empty gesture.

Impact

Federal workers affected by the partial government shutdown; financial institutions; companies; and credit reporting agencies.

Cost of H. Res. 77

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Maxine Waters (D-CA) introduced this resolution to help protect federal employees who were affected by the most recent partial government shutdown from damage to their credit scores during the shutdown.

During the shutdown, many credit unions offered low- or no-interest loans with generous repayment terms. The Credit Union National Association (CUNA) wrote to Rep. Waters on this issue, saying:

“Without having been asked by the government, credit unions took immediate action and responded to the needs of their members facing financial crisis as a result of the shutdown. Credit unions are on the ground helping those affected on a widespread basis and are honored to stand with their members during this time.”

Of Note: 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 percent 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:

• Credit Union National Association (CUNA) Letter to Rep. Waters

• Bankrate (Context)