Association Hosts Town Hall, Looks at Impact of Pandemic on Consumers & Overall Economy

The latest in a series of ongoing town halls was hosted Tuesday by the MD|DC Credit Union Association to support credit unions and offer guidance on COVID-19-related issues.

More than 150 attendees heard from Rep. Anthony Brown, state and federal regulators, Maryland’s chief economist and PSCU which provided insight on consumer behavior. If you missed it, the town hall was recorded and can be viewed here.

Update from Capitol Hill
Congressman Anthony Brown joined the town hall with an update from Capitol Hill and expressed his support for expanding the Payroll Protection Program and earmarking funds for credit unions to ensure small businesses get the relief they need. Congressman Brown thanked credit unions for helping consumers through the COVID-19 crisis and said based on his engagement with the Association, he’s advocating for the following key priorities to help credit unions better serve consumers:

• Increasing access to lending for small businesses by amending the Federal Credit Union Act to provide greater flexibility from the member business lending cap.
• Ensuring the Small Business Administration and Treasury provide the tools and resources to administer the PPP program properly.
• Providing the NCUA with the same powers as the FDIC by extending the maximum guarantee to all share deposits held in federally insured credit unions.
• Amending the Federal Credit Union Act to add underserved areas to credit unions’ field of membership.
• Provide capital relief to credit unions by not subjecting them to the Current and Expected Credit Loss (CECL) standard.

Consumer Behavior
To help credit unions gain insight on identifying members’ needs during the pandemic, PSCU President and CEO Chuck Fagan shared the latest payment trends and analysis. He said that according to PSCU data, overall credit card spending was down 32% and overall debit card spending was down 11.7% year over year for the week ending April 12, 2020. Fagan noted that as expected, there was a significant uptick in spending at big box and grocery stores, while spending at restaurants, and for travel and entertainment plummeted. He encouraged credit unions to consider where members are spending to make decisions about managing their card programs. Fagan said they might want to look at additional rewards points or lower rates on certain purchases to help members and keep loyalty high.

As for trends credit unions should expect as we emerge from the pandemic: Fagan predicts consumers, sensitive about handling cash and inserting cards into merchant terminals, will shift to contactless payments and recommends credit unions begin positioning themselves for this.

PSCU is providing weekly updates on spending to keep credit unions updated on trends so they can make informed decisions about their card portfolios.

Regional Economic Impact
Calling the impact COVID-19 is having on the economy “staggering,” Andy Schaufele, Maryland’s chief economist, said the state expects to lose $2.8 billion for the fiscal year 2020. He said withholding from employees, normally 45% of revenue, will decline 22% in the next several months, while sales tax revenues are expected to decline by about 59%, or $250 million, each month. One positive note, Schaufele said the state’s private sector is still maintaining about 78% of its wages.

Unemployment is outpacing any previous economic downturns at an extraordinary pace according to Schaufele. In four weeks, the state’s Labor Department reported 300,000 unemployment claims were filed, representing about 10% of Maryland’s workforce. To put it in perspective, Schaufele pointed out that it took 46 weeks to reach that mark during the Great Recession, and 48 weeks during the early 90s recession.

Assessing the long-term economic impact of the pandemic is challenging according to Schaufele because the crisis has unfolded with extreme speed and with so much uncertainty. While an economic forecast is still a few weeks away and will look at several scenarios, Schaufele said economic uncertainty will likely lead to reductions in hiring and investment, which historically creates the fundamentals for a prolonged recession. Schaufele recommends that after an historic economic expansion, credit unions should prepare for deflation in the near-term as demand drops, and for high inflation and high interest rates in the long-term.

Regulatory Guidance
NCUA Regional Director for the Eastern Region, John Kutchey said NCUA normal rulemaking is taking a back seat to addressing COVID-19 related issues. He reminded credit unions that the NCUA Board approved implementation of the interim final rules related to managing the Congressionally approved changes to the Central Liquidity Facility which gives credit unions more options for funding liquidity needs moving forward. He said the NCUA is spending a lot of time modeling credit risk which will help shape the examination program and take into account the current situation. Kutchey also said there may be changes to call reports to reflect the programs credit unions are participating in and the challenges they are facing. He also directed credit unions to the agency’s website online applications for grants for low-income credit unions through the Credit Union Resources and Expansion office.

Maryland Commissioner of Financial Regulation Tony Salazar strongly encouraged credit unions not to use stimulus payments deposited in a member’s account to satisfy an overdraft that existed prior to a stimulus payment being deposited to the account, or to exercise rights of offset against the account with respect to other debts.

Workplace Guidance
Attorney John Bredehoft from Kaufman & Canoles said the IRS released details on Monday about refundable tax credits for required paid leave. Bredehoft said the tax benefits are better than initially expected. According to the IRS, the eligible employer is entitled to a fully refundable tax credit equal to the required paid sick leave. This tax credit also includes the eligible employer’s share of Medicare tax imposed on those wages and its allocable cost of maintaining health insurance coverage for the employee during the sick leave period (qualified health plan expenses). The eligible employer is not subject to the employer portion of social security tax imposed on those wages.

Bredehoft also noted that the IRS added a requirement for the tax credit which mandates certification of paid leave to care for a child if the child is older than 14 years of age. The documentation must include a statement about special circumstances to care for the child.

The next town hall is Wednesday, May 6, 10:0 am – 12:00 pm. Look for registration soon.