WASHINGTON – U.S. Senators Ben Cardin and Chris Van Hollen (D-Md.) joined Senators Cory Booker (D-N.J.), Sherrod Brown (D-Ohio), Tammy Duckworth (D-Ill.), Bernie Sanders (I-Vt.), Brian Schatz (D-Hawaii), Raphael Warnock (D-Ga.), Elizabeth Warren (D-Mass.), and Sheldon Whitehouse (D-R.I.) in calling on financial regulators to issue guidance to regulated banks and credit unions, encouraging them to offer flexibility to federally employed customers impacted by a government shutdown. In their letter to the top financial regulators, the Senators expressed concern that federal employees, contractors, and servicemembers, who face the possibility of missing paychecks during a shutdown through no fault of their own, would be further strained by financial penalties such as overdraft fees and credit card late fees.
“As the possibility of a government shutdown approaches, we write to you to address concerns about how this may impact our nation’s government employees, and how this can be addressed through your oversight,” the Senators began. “The Senate continues to work to pass legislation to fund the government and avoid this preventable, shameful shutdown driven by the House Republicans. While federal law mandates that federal employees and the military receive back pay when the government reopens, the lapse in pay creates serious challenges for families. We hope that you will encourage and support banks and credit unions in efforts to provide flexible financial arrangements for their customers who endure temporary financial hardship due to a government shutdown beyond their control.”
“A government shutdown will cause pay interruptions for millions of federal employees, servicemembers, and federal contractors. Unexpected income shocks are a key driver of penalty fees, such as credit card late fees, overdraft fees, and minimum balance fees,” they continued. “Unexpected fees further strain government employees and servicemembers already struggling to cope with not being paid through no fault of these employees. Expenses continue even as income is halted, forcing even the most financially responsible federal employees and servicemembers to use savings to cover short-term expenses. Federal employees and servicemembers may be forced to utilize credit to make ends meet, adding to the concerningly high level of consumer credit card debt held nationwide.”
“We urge you to issue guidance encouraging your regulated institutions to work with individuals and small businesses impacted by a government shutdown. We hope that financial institutions will recognize the temporary hardship caused by unexpected gaps in pay, and respond by taking steps to prevent adverse information from being reported in a manner than harms consumers affected by a shutdown,” they wrote. “We ask that you consider encouraging banks and credit unions to temporarily waive minimum balance, overdraft fees, and late fees for any individual or small business impacted by the shutdown.”
“We will make every effort to avert a government shutdown and reopen the government quickly should one occur. But in the event of a lapse in pay for federal employees and servicemembers, we urge you to work with financial institutions to reduce burdens on those individuals who experience a lapse in pay through no fault of their own,” the Senators concluded.
The Senators addressed the heads of the following financial regulators: The Consumer Financial Protection Bureau, Board of Governors of the Federal Reserve System, Conference of State Bank Supervisors, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency.
Full text of the letters can be viewed here and below.
As the possibility of a government shutdown approaches, we write to you to address concerns about how this may impact our nation’s government employees, and how this can be addressed through your oversight. The Senate continues to work to pass legislation to fund the government and avoid this preventable, shameful shutdown driven by the House Republicans. While federal law mandates that federal employees and the military receive back pay when the government reopens, the lapse in pay creates serious challenges for families. We hope that you will encourage and support banks and credit unions in efforts to provide flexible financial arrangements for their customers who endure temporary financial hardship due to a government shutdown beyond their control.
A government shutdown will cause pay interruptions for millions of federal employees, servicemembers, and federal contractors. Unexpected income shocks are a key driver of penalty fees, such as credit card late fees, overdraft fees, and minimum balance fees. In a May 2022 Senate Banking Financial Institutions and Consumer Protection Subcommittee hearing, Brookings Institution Senior Fellow Aaron Klein testified that, “The reason people go negative in their bank account temporarily has a lot to do with the mismatch in time between when they have access to their money and when their payments are debited from their account.” Customers facing a temporary income shock could easily fall below the standard minimum balance required to uphold the terms of free checking accounts, triggering account maintenance and penalty fees.
Unexpected fees further strain government employees and servicemembers already struggling to cope with not being paid through no fault of these employees. Expenses continue even as income is halted, forcing even the most financially responsible federal employees and servicemembers to use savings to cover short-term expenses. Federal employees and servicemembers may be forced to utilize credit to make ends meet, adding to the concerningly high level of consumer credit card debt held nationwide. The monthly cost of holding credit card balances has increased as Annual Percentage Rates (APRs) have risen in tandem with the Federal Funds Rate, causing the overall cost of credit to rise significantly for those who use it.
We urge you to issue guidance encouraging your regulated institutions to work with individuals and small businesses impacted by a government shutdown. We hope that financial institutions will recognize the temporary hardship caused by unexpected gaps in pay, and respond by taking steps to prevent adverse information from being reported in a manner than harms consumers affected by a shutdown. Institutions can proactively work with customers to provide modified credit arrangements in order to prevent derogatory information from being reported to consumer reporting agencies. We ask that you work with, and encourage, your regulated institutions to provide flexible alternatives to financial arrangements that put their customers in a temporarily compromising financial position, recognizing that this is temporary and not reflective of the customer’s true risk profile. Institutions that work with their customers to provide flexible financing arrangements and place loans in forbearance need reassurance that these actions will be taken into consideration in supervisory practices. We ask that you consider encouraging banks and credit unions to temporarily waive minimum balance, overdraft fees, and late fees for any individual or small business impacted by the shutdown.
These actions would mirror steps financial regulators made in past shutdowns. However, since the last shutdown in 2019, the financial system has faced increased stress due to interest rate risk, and the recent bank failures this spring have highlighted a stronger need for focused, concerted balance sheet management. As institutions may be reluctant to take proactive steps to assist customers, it is critical that joint guidance be issued reduce uncertainty and empower institutions to provide flexibility to federal employees and servicemembers while mitigating any clear risk factors. The need for continued functioning and guidance at the Bureau is stronger now than ever as you work to protect our federal workers and servicemembers.
The economic cost of a shutdown is not isolated to just workers in the District of Columbia and surrounding regions. Data from the Census Bureau and the Office of Personnel Management demonstrates that federal workers reside in every Congressional District in America, meaning that local economies across the country would be harmed by federal worker furloughs.
We will make every effort to avert a government shutdown and reopen the government quickly should one occur. But in the event of a lapse in pay for federal employees and servicemembers, we urge you to work with financial institutions to reduce burdens on those individuals who experience a lapse in pay through no fault of their own.
Sincerely,
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