Congress mulls further coronavirus relief for consumers
WASHINGTON — Although the $2 trillion economic rescue plan passed by Congress included key consumer protections, Democrats are not done seeking help for those struggling to make ends meet during the coronavirus pandemic.
With many expecting Congress to mull yet another round of stimulus, analysts expect House and Senate Democratic leaders to be even more aggressive in pushing for temporary measures such as a ban on overdraft fees, a national cap on consumer loan interest rates and a broader moratorium on negative information being posted to consumer credit reports.
The sweeping package signed into law last week includes direct payments of $1,200 per adult and $500 per child, as well as some relief for borrowers of federally backed mortgages. But observers said Congress could face more pressure to give consumers relief if those payments do not arrive in time for consumers to make their monthly bills.
“The longer Treasury delays in getting money into peoples’ hands, the stronger the argument comes for providing people temporary relief,” said Aaron Klein, policy director at the Brookings Institution’s Center on Regulation and Markets. “I think the longer this pandemic goes on, the more consumers will need relief.”
House Financial Services Committee Chairwoman Maxine Waters, D-Calif., and Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking Committee, both supported the stimulus effort but said more still needs to be done to protect families hurting economically from the COVID-19 pandemic.
“I am pleased that this legislation includes important provisions that Democrats fought for to support individuals, families, workers, small businesses and communities, and support the bill’s passage,” Waters said in a press release Tuesday. “But, the legislation is far from sufficient to fully support our nation through this crisis.”
Waters had called for a measure to prevent lenders from reporting missed or late payments to credit bureaus, a temporary ban on debt collection, and a nationwide ban on all evictions and foreclosures, among other things. Brown introduced a temporary ban on overdraft fees, a 36% cap on consumer loan interest rates, and free digital wallets for consumers to receive coronavirus relief funds. But none of those proposals were included in the legislation.
Brown "will continue to look for legislative paths forward,” said a spokesperson. The Ohio senator, along with Cory Booker of New Jersey, previously called for a crackdown on overdraft fees. Those fees are a key source of revenue for credit unions, and in recent years the industry's reliance on overdraft fee has risen faster than that of banks, according to data from Moebs $ervices in Lake Bluff, Ill. Any measures that scale back overdraft revenue for CUs, whether voluntary or forced by Congress, could result in a significant decline in noninterest income for the industry.
Democrats' bargaining power was limited in the negotiations last week. While their support was necessary to enact the package and Senate Minority Leader Chuck Schumer, D-N.Y., played a key role in legislative talks, it was also hard for anyone to oppose a plan seen as an emergency lifeline for multiple sectors teetering on collapse.
But some believe provisions protecting consumers could carry more weight in a subsequent round of stimulus.
“The longer there’s an economic downturn, the greater the window will be for radical legislation,” said Jaret Seiberg, a policy analyst with Cowen Washington Research Group. “And I would put interest rate caps in the category of radical policy options. … I think further limits on overdraft fees become possible. I think limits on ATM fees become more possible.”
To be clear, Democrats were able to provide consumers some relief in the legislation negotiated last week with the Trump administration.
The bill included a provision to protect consumers’ credit reports if they need to make loan modifications related to the coronavirus. The package provides for up to 180 days of forbearance for borrowers of federally backed mortgage loans, and it prohibits foreclosures on federally backed mortgage loans for 60 days.
A former senior Senate staffer noted that none of those provisions were included in the stimulus package Senate Majority Leader Mitch McConnell, R-Ky., initially proposed.
“If you look at the original Treasury proposal for phase three and the original McConnell bill that Senate Republicans developed largely on their own, there wasn’t anything in terms of forbearance or anything,” the former staffer said. “Now, after the Democratic negotiations and the final deal, at least you have what we knew all along were Democratic priorities."
Still, consumer advocates say the stimulus deal fell short for consumers.
“The stimulus package did have some important relief for individuals, but it fell far short of what was needed, especially in protecting people’s bank accounts, so that they have funds for food and necessities and making sure that the mortgage and student loan forbearance reach everybody with all types of loans," said Lauren Saunders, associate director at the National Consumer Law Center.
Consumer advocates note that the provision aimed at protecting consumers’ credit reports wasn’t a complete moratorium on negative credit reporting. That measure requires financial institutions to report modified loan payments as “current” to credit reporting agencies.
Some note that the bill could have codified industry practice by requiring lenders, when they report a borrower's loan payment information, to include a disclaimer that the borrower was making payments during a disaster event. But in an issue brief, the NCLC said the legislative text “does not require the creditor to report the natural disaster code.”
“The credit reporting provision ... perhaps makes things worse and does nothing to protect consumers,” said Saunders. “It may be even weaker than the current disaster codes and protocols that the credit bureaus use.”
The prospect for for added consumer relief really depends on the duration and magnitude of the pandemic, the former Senate staffer said.
“If it really becomes more dire for individuals, then I could see these kind of measures taking on a little more interest or members of Congress having a little more interest in finding ways to be helpful to consumers,” the former Senate staffer said.
For one, consumers likely won’t receive the $1,200 relief payments from the government in time to pay their monthly bills.
“That’s almost a virtual certainty that they’re not going to have this money in a week to 10 days,” the former staffer said.
Klein said that a proposed temporary ban on overdraft fees would be a particularly useful measure to pass for the duration of the pandemic. Some banks are already offering overdraft relief to consumers. Some credit unions are making similar efforts, including TBA CU in Traverse City, Mich. which has waived those fees through the end of April.
“I think banks have become too dependent on overdraft fees,” Klein said. “I think bank regulators ought to require banks who participate in special programs to pause overdrafts during the crisis. I think the overdraft proposal is a good proposal. ... The 8% of Americans who pay the $25 billion a year in overdraft fees are the ones that are subsidizing free checking for the rest of us. And the idea that people living paycheck to paycheck pay the most for a basic bank account is morally wrong.”