Throughout February, the looming possibility of a government shutdown waxed and waned almost daily. Although a stopgap measure temporarily avoided a shutdown by providing federal funding through April 8, the potential for a rerun of this winter’s budget battle is not going unnoticed. Credit unions are making preparations, investing in technology, and learning from past experiences to lay the groundwork for a possible break in member employment.
From 1981 to 1995, there were nine government shutdowns lasting no longer than three full days, according to the Washington Post. The longest shutdown in history lasted 21 days, from Dec. 15, 1995 to Jan. 6, 1996.
High-Tech Delivery Channels
According to the Wall Street Journal, services required for "the safety of human life or the protection of property” are safeguarded even during a government shutdown; this covers the major functions of the banking industry.
Postal service continued throughout the 1995 shutdown. Credit unions’ increasing reliance on high-tech delivery channels means minor interruptions in what might be deemed even essential services might not have as big an impact as they would a decade or two ago.
Lake Trust Credit Union ($1.6B, Lansing, MI) has experienced multiple local government shutdowns in its history, each ranging from a few hours to a few days.
“We’ve never had back-office processes interrupted,” says Stephan Winninger, CEO. “We kept on clearing checks and making loans.”
Bigger concerns credit unions might face in the event of a shutdown include meeting the liquidity demands of members with furloughed wages or experiencing payment delays from social services.
“Fewer than half of the 2.1 million federal workers subject to a shutdown would be forced off the job if the Obama administration followed the path taken by presidents Ronald Reagan, George H.W. Bush, and Bill Clinton,” reports the Associated Press. “That's not counting 600,000 Postal Service employees or 1.6 million uniformed military personnel exempt from a shutdown.”
Despite these exemptions, it is likely a shutdown will affect the membership of many credit unions. For members living paycheck to paycheck, even a short interruption in the flow of funds is an emergency; that’s where credit unions come in.
“We don’t just give up on members if they’re not working,” Winninger says.
Prior to NuUnion Credit Union’s merger with Detroit Edison Credit Union (which created Lake Trust), state employees made up less slightly less than 30% of its membership. That number diminished further post-acquisition, yet Lake Trust still supports members during shutdowns by providing unsecured personnel loans and other small loans.
“We try to normalize life as much as possible for them and never close the loan window,” Winninger says.
Justice Federal Credit Union ($512.2M, Chantilly, VA) has prepared a special Furlough Relief Loan for amounts up to $3,000 and will defer payments for existing loans to membership affected by a government closure. The furlough loan carries a 0% interest rate for the first 60 days, followed by a 4.90% rate, and amounts received are based upon the member’s income.
“Supporting our members in a time of financial stress is important to us,” said president/CEO Pete Sainato in a release. “We were there for our members during the last government furlough and plan to be there for them this time should the government shut down.”
Likewise, NASA Federal Credit Union ($1.1B, Bowie, MD) will offer its existing and qualifying new members who work for the federal government (or are federal contractors) a Delayed Paycheck and Furlough Relief Loan. The loan provides those with delayed paychecks a 0% interest loan for the first 30 days to supplement income; the loan converts to a 12 month signature loan at the current APR after that time. Furloughed workers might qualify for 12 month signature loans at preferred rates including 0% interest for the first 30 days.
"We hope Congress will pass the federal budget bill, but in the event they don't, resulting in a government shutdown, NASA FCU has its members who are federal workers covered," said CEO Doug Allman in a statement from the credit union. "We're always ready to help our members in times of financial stress."
For the Long Haul
Even credit unions with a field of membership (FOM) outside of state or federal employees should have a plan in place should their SEGs or FOM experience a more far-reaching or long-lasting employment shift.
According to the Writers Guild of America, during the 2007-2008 writer strikes the Musicians' Interguild Credit Union ($78.4M, Hollywood, CA) offered payment deferrals on new unsecured loans, member signature loans, and refinancing, which beat any approved rate from other financial institutions on auto or unsecured loans.
State Employees Credit Union ($21.5B, Raleigh, NC) has further bolstered its existing Mortgage Assistance Program (MAP) in light of generalized government cutbacks. The program has already helped keep more than 7,000 families in their homes, but it will be especially important in coming days to provide refinance, modifications, debt restructuring, and counseling options to families of any laid off state employees.