Small-dollar loans highlight banks’ coronavirus relief efforts
With the novel coronavirus pandemic shutting down nearly every aspect of daily life, banks have begun extending cheap credit and other forms of relief to help customers withstand the economic shocks.
Liberty Bank in Middletown, Conn., for example, will soon begin making unsecured consumer loans of up to $5,000 at no interest for its customers. The $5.9 billion-asset bank has committed $5 million to that loan program to go along with other customer relief efforts.
President and CEO David Glidden said banks are in a much better position to help customers through this economic crisis than they were during the Great Recession of 2008 and 2009, when banks were essentially fighting for their own survival. Bankers expect the $2 trillion stimulus bill currently before Congress to augment their efforts, but many have not waited to act.
“The banking system coming into this crisis is very strong, very well capitalized and has the cushion to be flexible with our customers,” Glidden said. “I think it’s incumbent upon us as an industry to use that strength to do these proactive things.”
While necessary to slow the spread of the virus, the closing of non-essential businesses in at least 23 states so far has also meant a loss of income for many consumers and small businesses.
Accordingly, many banks have stepped up to offer no- or low-interest credit, fee waivers and other customer relief initiatives to help households and small businesses meet their daily expenses.
The $495 billion-asset U.S. Bancorp in Minneapolis, for instance, is offering Visa-branded credit cards for consumers and small businesses with a 0% interest rate for the first 20 billing cycles. It’s also reduced the interest rates on some of its unsecured personal loan products.
Five Star Bank, a $4.3 billion-asset unit of Financial Institutions in Warsaw, N.Y., said this week that it would offer unsecured personal loans up to $5,000 at a rate of 2.95%.
Eastern Bank in Boston also launched emergency loan programs for consumers and small businesses on Tuesday. The $11 billion-asset mutual said it has committed $2 million to a consumer loan fund and $5 million for a small-business loan fund for existing clients. Consumers can borrow up to $5,000 with no interest or payments for the first three months, while small-business customers can borrow up to $25,000 with interest only payments for the first six months.
“I expect these funds will be quickly exhausted,” President and CEO Robert Rivers said. He pointed out that a $10 million emergency small business loan fund launched by the state was tapped out within three days. “We see this as a first step among other things we will need to do over time, but this is a good place for us to begin.”
The $2 trillion stimulus package Congress was deliberating over on Wednesday will certainly help to boost banks’ relief efforts, several executives said.
“The economic impact of this situation will be much larger in magnitude, I think, than 2008,” said Martin Birmingham, Financial Institutions' president and CEO. “It’s going to require, and we’re all waiting today for, significant coordination, collaboration, and action of the federal government and Federal Reserve really in concert to mitigate the impact of this crisis.”
Phil Flynn, president and CEO of Associated Banc-Corp. in Green Bay, Wis., said Tuesday that the $32 billion-asset company has been extending credit on an individual basis. He added that he was hopeful that Associated could participate in a government-guaranteed loan relief program.
“We’re waiting for a program that we can plug into and offer to our customers,” Flynn said.
In the meantime, bankers are still forging ahead with their own efforts.
While many have offered to waive ATM and late payment fees on an individual basis, a few have simply chosen to do away with certain fees across the board, at least for the time being. Five Star, for instance, said it would eliminate all overdraft, returned item, Pay by Phone and late fees through the end of April.
Associated is also waiving fees on a variety of loan and deposit products for up to 90 days.
“If someone goes into another bank’s ATM and withdraws money, we’re just not charging them. If someone needs to access a CD, we’re not charging them,” Flynn said. “That’s relatively easy to do. It’s income and revenue that we’re not getting, but that’s not the most important thing right now.”
Umpqua Holdings in Portland, Ore., said Wednesday that it would waive ATM fees for all of its customers. The $28.8 billion-asset company also said it would waive deferral fees for consumer and small-business borrowers who ask to have loan payments deferred.
Most banks have also offered customers deferrals on mortgages, consumer loans and business loans as part of broader relief efforts. And many are temporarily halting foreclosures and repossessions.
Timothy Flacke, executive director at Commonwealth, a Boston nonprofit, said banks should think about other ways they might be able to help consumers, especially those who were financially insecure before the pandemic.
With many Americans poised to receive checks from the stimulus bill currently before Congress, financially anxious consumers will likely want some certainty about when funds from a paper check will be available in their accounts.
Banks can be proactive reaching out to customers to let them know when the funds will be available and hopefully dissuade them from using check cashers when the check arrives, said Flacke, whose nonprofit designs programs to help low-income people address financial challenges.
“A lot of people saw the financial services industry and banks as the villains in the last crisis,” Flacke said. “This is a different kind of crisis, so banks should really give some thought as to how they can be the heroes this time.”