The coronavirus outbreak is spreading and now we’re looking at a potential financial threat to everyday consumers.
Banks and the federal government are increasingly recognizing this reality. It’s not just about stocking up on hand sanitizer and toilet paper. It may indeed be about preparing to pay your bills.
Citi, for example, reached out to its credit card customers via email to address concerns about COVID-19.
Among other things, Citi encouraged customers to access their accounts from home 24/7 to manage their money digitally. And if customers faced a loss of income, perhaps due to a temporary shutdown at a brick-and-mortar store or factory, Citi said it was ready to offer its support and “dedicated assistance” programs.
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What will banks do for consumers?
“Please contact us at the number on the back of your card to find out about ‘always on’ assistance programs that may be available to you, such as credit line increases and collection forbearance,” the notice read.
PNC Bank sent coronavirus-related emails to its customers on Tuesday. The overall message: “We stand ready to work with those experiencing financial difficulty as a result, and we are taking the necessary steps to avoid potential disruptions of service to our customers.”
PNC customers were told to contact the bank if they “encounter hardship as a result of the coronavirus.”
During the coming weeks, I’d expect that consumers will see similar types of outreach as the virus spreads in the United States and we may need to deal with some front-line impact involving job cuts and other disruptions to the economy.
Will we see some short-term windows for skipping a mortgage payment or two in some hard-hit areas in the United States? Mortgage companies offer borrowers such breaks after a natural disaster. In Italy and the United Kingdom, homeowners are getting some relief after COVID-19 has spread there and they’re seeing some mortgage payments being suspended.
Will those touched directly by the health crisis here see some breaks on fees for cash advances? Or short-term breaks on offering a bigger credit line on your credit card? Maybe.
Right now, many things are working just like you’d expect. I walked into a bank branch Monday afternoon in Detroit and talked to a teller. No problem. Granted, the friendly teller did offer me some hand sanitizer after we discussed coronavirus.
And you can get your taxes done during tax season. “At this time, coronavirus has not impacted the tax season, but we are continuously monitoring the situation and have plans in place, if needed,” said Susan Waldron, a spokeswoman for H&R Block.
Going forward, though, the situation can change depending on the depth of the health crisis in the United States. Banks, credit unions and others could face staffing challenges as cities see more reported coronavirus cases.
Consider a blurb this week from federal and state regulators, relating to the impact of coronavirus on banking customers. The notice talks of regulatory assistance and encourages financial institutions to “work constructively with borrowers and other customers in affected communities.”
“Prudent efforts that are consistent with safe and sound lending practices should not be subject to examiner criticism,” the financial regulators noted.
How will some people pay their bills?
Moody’s economist Mark Zandi said the Consumer Financial Protection Bureau, the Federal Reserve and other regulators are asking banks and other lenders to show forbearance to their borrowers.
Regulators, he said, are worried that if borrowers’ incomes are disrupted due to the virus, they may not be able to make payments on their loans.
“If banks cut them a break, then they won’t go delinquent, and hurt their credit scores. It is a bit of financial relief, and should be helpful,” Zandi said.
Zandi is predicting that the U.S. economy will see some job losses in the next few months due to the coronavirus. Just imagine the difficulty running a company that focuses on travel, tourism, transportation, energy and manufacturing.
As conventions, concerts and conferences are canceled across the country, for example, more hotel workers could face cuts in hours or job losses.
If people can’t work and don’t get paid, Zandi said, they technically can’t be counted as being employed.
“Moreover,” he said, “businesses will be more cautious in their hiring.”
Zandi expects the U.S. jobless rate to be a bit over 4% by the end of 2020, up from 3.5% in February.
On the plus side, he said, the jobless rate is unlikely to skyrocket if the Trump administration and Congress pass some fiscal stimulus package. And the tight job market now may help some workers avoid layoffs or cutbacks if the coronavirus spreads.
“Businesses have also been struggling to fill open job positions and will work hard not to lay off workers as they know it will be hard to hire them back when conditions improve,” Zandi said.
Will we see a payroll tax holiday?
President Donald Trump is backing a plan to cut payroll taxes to offer some immediate relief and put more money in weekly paychecks. Trump has also floated an idea for getting hourly wage earners help, “so they can be in a position where they’re not going to miss a paycheck.”
Some want to see help that offers paid time off for workers who end up being sick but currently aren’t allowed any paid sick days on their jobs.
A payroll tax holiday isn’t a brand-new idea. It had support from Democrats and the GOP in the past. After some haggling, Congress agreed in late 2010 to a one-year 2% payroll tax cut under President Barack Obama’s administration and then Congress extended the holiday for one more year at the end of 2011.
We’re not talking about a great deal of extra money per check, but it can add up.
Under the old 2% cut, a person who earned $50,000 in wages would have seen an extra $38 in take home pay if they were paid every other week or over 26 pay periods in a year, according to Nathan Rigney, lead tax research analyst for the Tax Institute at H&R Block.
Some workers might have seen an extra $1,000 or so over a year — more or less, depending on your wages.
“A payroll tax holiday shows up immediately as a bigger pay check,” Zandi said. “So, it is a quick cash infusion to consumers and the economy.”
One concern is that higher income households may not spend the money immediately if they really don’t need it. Some might not even realize they’re getting extra money if they’re utilizing direct deposit and don’t pay much attention.
Even so, Zandi said, the multiplier of payroll tax holiday is close to 1 — meaning that every $1 in tax break results in $1 in added consumer spending within 6 months.
It’s a decent bang for the buck.
While there may be some help along the way, though, consumers need to shore up their finances and create their own disaster recovery plans.
It might be tempting if you’re not eating out as much to use that extra cash to sit at home with a cocktail and do a little online shopping. But realistically, given the dramatic declines in the stock market and the projected job losses, it isn’t a bad idea to set aside a few extra dollars in emergency savings, too.
Just in case.