Protecting public health is everyone’s top priority now, so Americans are rightly focused on social distancing and other measures to stay safe. How are they supposed to stay solvent during the coronavirus, too?
A federal rescue package will help, after a final bill is approved, tweaked and ready to go. But consumers should look beyond Washington and make some moves now to prepare for the coming financial storm.
The expert advice starts with this, especially for those living paycheck to paycheck: Tally up your liabilities, contact all your creditors and ask about ways to delay payments without incurring late fees and other charges.
Ask about lowering the interest rate, even for a limited period.
Many leading lenders have said they’ll work with consumers. They include JPMorgan Chase, Wells Fargo, Santander Consumer USA and Toyota Financial Services, to name a few.
One adviser recommends poring over recent credit card bills and bank statements to find expenses that can be cut. People don’t realize how much they can save from eliminating recurring payments, said Tom Murphy, a longtime certified financial planner in North Dallas.
“Anything you can do without, do without,” Murphy said. “Until we have a better feel for how long this is gonna last.”
Another expert suggested contacting elected representatives in Congress to demand that some changes -- say, protections against high-interest loans, foreclosures and evictions -- be imposed nationwide, not just company by company.
A variety of rules, voluntary measures and corporate promises have emerged in recent days, and the approaches vary in different parts of the country. That won’t cut it, said Jack Gillis, executive director of the Consumer Federation of America, a nonprofit research and advocacy group in Washington.
“It shouldn’t matter what state or jurisdiction you live in -- you’re entitled to the protection you need to financially survive this crisis,” he said.
This could be particularly helpful in Texas, where lawmakers tend to take a light hand on regulation, and many residents struggle with high debt loads and other forms of financial distress. The state’s strong economy may be legendary around these parts, but many workers have been falling through the cracks.
In 2018, almost 21% of borrowers in the state were “severely delinquent,” which means they were at least 90 days late on a debt payment. That was 6 points higher than the U.S. rate and was the highest among the 10 most populous states, according to the Prosperity Now Scorecard, which compiles data from the New York Fed and other government sources.
Over 30% of Texans had high credit card debt, defined as having debt surpassing 75% of their credit limit. Over 30% had debts in third-party collections, and almost 1 in 10 residents has no savings or checking account. In these metrics, Texas ranked at or near the bottom in the U.S., the scorecard shows.
While some people can absorb the impact from a deep economic downturn, many cannot, Gillis said.
“Our No. 1 concern is the financial health of Americans living paycheck to paycheck,” he said. “For those families, financial destruction could be right around the corner.”
Some lenders, such as Chase, Santander and Toyota Financial, are offering to defer car payments to the end of the loan, extend auto leases and suspend home foreclosures for 60 days. But not everyone is on board.
Some Dallas Morning News readers shared stories of landlords who are insisting the April 1 rent be paid on time, regardless of the circumstances.
“At this point, the jury is out on whether these voluntary efforts by corporate America are real enough,” Gillis said. “That’s why we’re calling for federal intervention -- so all consumers will be treated equally.”
At the top of his group’s wish list: an annual cap of 36% on payday loans.
That may not sound like a bargain, but small-dollar loans can rack up significant expenses and trap low-income workers in a cycle of debt.
In Texas, the average interest rate on a typical payday loan was 661%, highest in the country, according to the Center for Responsible Lending in North Carolina. Between payday loans and similar car-title loans, borrowers in Texas spent almost $1.7 billion annually -- over twice as much as the next-closest state, California, the group said.
When members of the U.S. military get payday loans, annual interest rates are capped at 36%. But civilians are governed by state rules, and while many states set interest-rate limits, Texas lawmakers have not.
If Congress caps interest rates as part of the financial rescue package, that could benefit Texans during the coronavirus crisis -- and after.
To limit the spread of the virus, many companies, including bars and restaurants, are closing temporarily or sharply reducing their workforce. Others are having employees work from home, which also reduces economic activity.
Unemployment is expected to surge in coming weeks, as more employers cut costs in the face of falling revenue. Many believe the economy is contracting and a recession has already arrived.
Murphy, the financial planner, got a call Tuesday from a client who had an afternoon appointment with the human resources department. He expected to be laid off and wanted to discuss strategies.
He has some savings, about three months of expenses, that was put away for an emergency. He also hoped to get a severance package.
That puts him in a better position than many, but Murphy’s advice is similar: Call all creditors and see what terms are available to help preserve savings.
“I’d call as soon as possible,” Murphy said. “I don’t know how anyone today can assume they'll have a job in two weeks. I’m not sure -- and I own the company.
“We’re somewhere we’ve never been before,” he said. “People can lose their jobs simply because other parts of society have stopped functioning.”
