AB 2501 is an ill-conceived, one-size-fits-all approach to financial relief for Californians
The COVID-19 pandemic has resulted in a sudden financial crisis for millions of Californians. Work hours have been drastically reduced for many. Many more have lost their jobs completely. Local businesses have shut their doors.
The unexpected destruction to the state’s economy cannot be understated.
During this challenging time however, California’s financial institutions have remained strong and have played a significant role in the state’s recovery.
Credit unions have a legacy of assisting their members during times of hardship – from natural disasters and recessions to government shutdowns – and this economic crisis has been no different.
So, it was natural for credit unions in California to collaborate with Gov. Gavin Newsom and agree to provide assistance, including mortgage forbearance, to our members. The governor’s leadership was exactly the right touch, as banks joined credit unions in agreeing to voluntarily provide assistance.
And we’re seeing that Newsom’s plan is working. Just look at the numbers.
Since California has issued its “stay-at-home” order, the state’s credit unions have provided hundreds of thousands of their members relief from mortgages, auto loans, credit card payments and business loans.
In a just released survey, many of California’s credit unions indicate that in addition to collectively funding $628 million in business loans with Paycheck Protection Program funds:
- 18,949 mortgage payments have been extended;
- 487,357 consumer loan (auto and credit card) payments have been extended;
- More than 500,000 members have been assisted
The numbers don’t lie. Credit union members are taking advantage of their relationship with their local credit unions. And as partners in the local community, our credit unions are willingly stretching themselves to help alleviate the financial burden of their members.
So why then does the Legislature want to weaken credit unions?
Assemblymember Monique Limón, Democrat from Santa Barbara and chair of the Assembly Committee on Banking and Finance, introduced Assembly Bill 2501 that would require credit unions to stop mortgage payments for members experiencing financial hardship during the COVID-19 pandemic for 180 days after the state of emergency ends. And if the member is still experiencing a hardship, the bill allows for an additional 180-day forbearance.
The bill does not require the member to provide any documentation to prove hardship and the member can make the request either orally or in writing. AB 2501 also requires the credit union to pay any impounds that are due, including county taxes and insurance, for the borrower member while they are in forbearance, regardless if the member has the funds in the impound account.
To stretch things further, AB 2501 also requires credit unions to pause auto loan payments for members experiencing COVID-19 related hardship – and regardless of delinquency status – for up to 180 days and does not allow the credit union to charge fees, penalties or additional interest beyond the amounts scheduled during the forbearance period. As with mortgage forbearance, the bill has no requirement that the borrower prove they have experienced a COVID-related hardship. Members can also request an extension if they assert their continued inability to make payments.
While the intention of AB 2501 is respectable, the bill’s requirements compromise the ability of credit unions to work individually with their members and corrupts the progress made by the governor’s workable plan. The goal of any economic stimulus package and the government’s programs to provide benefits to those who have lost their job during this crisis is to keep the economy going. Private-sector financial institutions should not be forced to bear the burden of a duplicative, confusing, ill-conceived one-size-fits-all approach to financial relief.
Movie stars and tech billionaires don’t need help paying their mortgages, but under AB 2501, they could receive assistance from their financial institution, thus taking away limited resources from those who truly need it. Credit unions do not print money, and if their capital is reduced in an arbitrary manner, those who are desperate to keep a roof over their head and food on their table will be in a significantly unfavorable position.
California will recover from this time of economic hardship, but the issue of monetary relief needs the precision and care provided by the governor’s leadership, in partnership with California’s financial institutions. The Legislature should leave it alone, and not interfere with Newsom’s successful approach.
Diana Dykstra is president and CEO of California Credit Union League, [email protected]. She wrote this commentary for CalMatters.