The economic implications of COVID-19 are not yet understood in Central Texas, or across the globe, but what we do know is that lost wages and layoffs are already taking place and the financial distress those cause is likely to hit the working class hardest. We also know that many in our community don’t know about the options available to them through their financial institution. Thus, the following describes how Amplify Credit Union is navigating this situation, including guidance for individuals who may find themselves in financial distress during these challenging times.
Amplify is monitoring utilization of account service features, such as privilege pay (our name for what most institutions call “overdraft protection”) to ensure our typical policies don’t enable members to make a bad situation worse in an unusually difficult time. If left unchecked, consumers can find themselves incurring so many fees they’re unable to recover, ultimately driving them toward predatory lending options that perpetuate the cycle of poverty.
We’re already starting to see a small portion of members utilizing privilege pay more than usual, so we’re paying close attention to members who don’t usually use privilege pay and equipping our Contact Center agents to use discretion in granting waivers for those without a history of such incurring such fees. Also, individuals should know that almost all financial institutions can “turn off” this feature on checking accounts, so if you’d prefer to avoid the risk of incurring these fees, contact your financial institution and ask them to turn off overdraft protection on your account.
We’re also seeing more requests for loan payment deferrals and we’re working to make that process faster and easier for members. Typically, it entails some documentation to verify financial hardship, but in this case, as long as members simply tell us their hardship is COVID-19 related, we’re accepting that as evidence of need and waiving the $35 fee we typically charge for that service.
Certainly, we don’t want to encourage members to defer payments if they don’t absolutely have to, because that will only cost them more money in interest over the long term and it doesn’t help anyone to make today’s small problem tomorrow’s big one. However, if a member is facing a situation where they simply can’t make their loan payment, we want to work with them to create an arrangement that is sustainable. We can do that best before payments are missed, so we strongly encourage individuals to reach out to request a deferral as soon as they believe they may be at risk, and it’s our understanding other financial institutions are doing the same.
Lastly, Amplify is modifying our loan collections practices. Typically, Amplify doesn’t engage in any collections activities until a loan is 20 to 25 days late, which is near the time period we’re required to report it to credit bureaus (at 30 days late). In today’s environment, we’re taking a more proactive approach, monitoring payments not yet received within the grace period (a payment that’s due on 1st, but not subject to late fees until the 10th, for example) and reaching out to borrowers to see if they need help before their loan payment is due.
Specifically, we want to ensure they’re aware of the options available to them that are described below since they can prevent a negative situation for members and help us to keep our loan portfolio healthy.
Steps on Request
One of the most common things members can request to alleviate a short-term (one month) financial hardship is what’s called “skip-a-pay.” Like many financial institutions, Amplify typically charges a fee for this service (ours is $35) and only allows customers to utilize it once per year. Under the current circumstances, we’re waiving that fee for anyone with a COVID-19-related hardship.
However, it should be noted that customers must still request and be granted a skip-a-pay to avoid late fees and negative reporting to credit bureaus. To request that, contact your financial institution and ask if they allow “skip-a-pays” and if they can do so without fees.
For consumers that expect financial hardship to last longer than one month, but not on an ongoing basis, a better option could be to request a payment deferral. A payment deferral allows members to halt payments for a certain time period (typically 60 or 90 days) without defaulting on the loan. Interest does still accrue during that time and is payable either over the life of the loan or in a lump sum payment at the end of the term, depending on what you agree to with your financial institution. However, with an approved payment deferral, fees are not assessed and negative reports are not made to credit bureaus, assuming timely repayment resumes after the end of the agreed-upon timeframe. To request that, contact your financial institution and ask about options for payment deferrals.
Lastly, if your circumstances have changed on a long-term basis – such as losing your job, and now earning substantially less than you did before – you could consider a loan modification. This is when a financial institution modifies the length of the loan and the amount due each month to match a borrower’s ability to repay, given their new circumstances. Note that this doesn’t decrease the amount owed, it just typically stretches it out over a longer time period, making the monthly payments more achievable.
Loan modifications typically do not entail filling out a new loan application and may or may not entail pulling new credit reports, but there is more paperwork involved than the other options above and it’s likely to take longer to arrange (usually at least two weeks and sometimes longer than three months). If you find yourself in this situation, contact your financial institution and ask how you can explore loan modification options.
Questions and Answers
Can Banks Call Their Customers to Offer These Types of Assistance?
Most financial institutions do not do this, and Amplify is among them. The primary reason is that one of the most common ways criminals attempt to defraud consumers is by calling them and pretending to be “their bank,” so many financial institutions encourage customers to be suspicious of such claims and even recommend customers insist on calling back into a known phone number to ensure the call is legitimate. Also, most financial institutions serve too many borrowers to make this practical. Rather, as described above, Amplify is looking more closely for warning signs borrowers may be in distress, and reaching out to them proactively to attempt to prevent negative outcomes.
Is Loan Forgiveness a Possibility?
It is highly unusual for a financial institution to forgive an individual’s loan and consumers shouldn’t expect that to be a likely outcome. If that practice were to be instituted on even a limited basis, it would quickly compromise the institution’s solvency (its ability to continue operating), creating negative outcomes for all customers and further limiting choice in financial services. The options described above that allow borrowers to restructure debt are more sustainable and more likely to be accommodated.
Can Individuals Without Accounts Cash Checks at Banks or Credit Unions, Such As Those They Might Receive for Government Aid, to Avoid Expensive Check-Cashing Locations That Offer Predatory Loan Products?
Some financial institutions allow non-account-holders to cash checks without a fee, but in this current situation, Amplify does not. That’s because we can only allow non-members to cash checks inside our branches, and to keep our employees & members safe, our branch lobbies are closed (with services available only through drive-thrus and by appointment). Sadly, times of distress are also times of increased criminal activity, and check fraud is one of the most common types of financial fraud. So, while we wish we could be more flexible on this practice, for the health of our institution, we cannot. That said, it’s our understanding that grocery stores such as HEB continue to offer check cashing services at reasonable rates, and consumers could access them without being exposed to predatory lending products.