Covid-19: Financial co-ops look to support members through crisis

Trade associations have released a series of coronavirus guidelines for credit unions and financial co-operatives

With the coronavirus pandemic significantly impacting the economy of nations all over the world, financial co-operatives are responding to the crisis while trying to continue to meet the needs of their members. This is not without challenges, particularly for smaller credit unions.

Brian Branch, president and chief executive of the World Council of Credit Unions (Woccu) says the pandemic has three effects on co-operatives providing financial services.

For most credit unions, they have to look at this from a risk management point of view,” he says, adding that many credit unions have put in place policies that limit their travel, and practices of self-isolation for people who do travel.

“It’s a precaution we are all taking. Everyone is learning to do more work from home. There is a lot of technology out there that is allowing us to do that,” he says.

The pandemic is also affecting people’s ability to work, with some unable to continue their work from home. This could stop them earning a salary, paying their bills, repaying their loans and growing their savings.

“Just as in some previous experiences with government shut down, we’ve seen credit unions develop policies and products to be able to help advance people support to enable them to get through these hard times with the notion that this is a temporary bump in the road,” says Mr Branch.

“The third level of impact is that credit unions are community based institutions and although this is a global health issue, it is one with community impact, so just as with any community crisis, we see credit unions step in to help communities deal with this issues.”

Woccu is in conversation with credit unions in South Korea to learn more about how they are providing support in local communities, looking at how they help people access healthcare, prevent contact and take care of their loved ones.

“They are doing this as a community support service and we are trying to support them in doing that. As we do that, we learn lessons about what works and what doesn’t work that we can share with other countries,” adds Mr Branch. Woccu will be publishing something in the near future on how credit unions can support members during the pandemic.

A number of financial co-operatives have already offered a helping hand to members in need. On 16 March, Desjardins Group, the largest federation of credit unions in North America, announced a series of relief measures. The Canadian co-operative said it was aware that personal members and clients might have difficulty repaying their loans due to Covid19. To address the situation, Desjardins is encouraging those in difficulty to get in touch.

Each request will be examined on a case-by-case basis and solutions will be suggested that could go as far as giving members and clients payment relief for all of their financing products, an option that wouldn’t have any negative impact on their credit rating.

Desjardins will also review credit applications on a case-by-case basis and offer support to members and clients who need quick access to cash. 

Similar support is available to business members and clients directly impacted by COVID-19. Desjardins promises to review each request on a case-by-case basis and provide options that could include relaxed credit terms and flexibility for loan repayment.

These measures may be expanded, says Desjardins, who will respond to the situation as it unfolds. Its subsidiaries, Desjardins Business and Desjardins Capital will also try to connect different businesses that may be able to help each other at this time.  

Guy Cormier, Desjardins president and CEO, said in a statement: “As a leader in socio-economic development, Desjardins has to be there to support Quebec’s and Canada’s economy. We hope the relief measures we announced today will help members and clients who are in financial trouble because of Covid-19.”

In addition to these initiatives, Desjardins has announced a new measure to limit the spread of coronavirus, such as increasing its contactless payment limit on Desjardins POS terminals from CA$100 to CA$250.

“Desjardins is aware that its members and clients are concerned, and we’re actively helping to limit the spread and overall impact of Covid-19. Increasing the contactless payment limit is just another way for us to help improve the well-being of people and communities,” added Mr Cormier.

Of course, in order to continue to support members during this crisis, credit unions and financial co-operatives will need the support of regulators and governments.

In the USA, regulator National Credit Union Administration has issued a letter in which it outlines a number of strategies credit unions may consider when determining how to work with their members to address the COVID-19 crisis.

The letter confirms NCUA will enable credit unions to prudently adjust or alter member loan terms without subjecting these measures to “examiner criticism”.

For example, says NCUA, a credit union may work with a borrower to extend the terms of repayment or otherwise restructure the borrower’s debt obligations. “Such efforts can ease pressures on troubled borrowers, improve their capacity to service debt, and strengthen a credit union’s ability to collect on its loans. Credit unions may also ease terms for new loans to affected borrowers where prudent. This may help consumer and business members deal with any impact on their cash flows due to COVID19,” reads the letter.

Trade body National Association of Federally Insured Credit Unions (NAFCU) is asking both the Trump administration and Congress to consider additional ways to provide credit unions with more relief to better serve members.

The US Senate is currently trying to agree on the Phase 3 of coronavirus relief provisions. NAFCU has been lobbying the government and the Senate during the negotiations to ensure credit unions have parity with banks in any relief provisions and that proposals that could harm the credit union industry are not included.

Another apex body, the Credit Union National Association (CUNA) is arguing that credit unions should be designated essential services during the Covid-19 pandemic. CUNA has been sending letters to state leadership organisations, asking them to include credit unions in Covid-19 policies they might adopt.

“More than 2,100 credit unions, serving nearly 46 million members, have a primary field of membership that includes school, military, health care, police, fire, transportation, utilities, and government employees. These credit unions and others are serving members who are on the front lines of helping to keep others safe during this crisis,” the letter read.

Similar concerns were raised by UK credit union professionals during the annual conference of the Association of British Credit Unions (Abcul). Julia Daniel from North London Credit Union pointed out that, as some borrowers have to isolate due to Covid-19, unable to generate incomes, they might find themselves in difficulty and not be able to pay back their loans.

Ms Daniel said that while credit unions want to support these people, but many operate on low margins and cannot survive for long with a large proportion of loans in arrears without financial support. Responding to such worries, Treasury minister John Glen said the government could discuss with credit union representatives who might need financial support.

Speaking on behalf of the PRA, Chris Donald told Abcul members the regulator was open to hear from credit unions facing challenges such as having to close their branches or having to rely on limited personnel.   

“These are not ordinary times, we may find ourselves in a period of great stress. We may find ourselves needing to tackle widespread problems with respect to the wider economy and your members’ interests,” he said, encouraging credit unions to engage with the regulator if they have concerns.

During these difficult times, trade bodies are offering guidance to credit unions and financial co-operatives struggling to cope with the challenges posed by Covid-19.

Credit Union National Association has made available a series of online resources. NAFCU launched a resource page where credit unions can read up to date guidance on how to respond to the crisis.

The impact of the pandemic on the global economy remains uncertain. Some economists predict another recession, which, they say, could be worse one than that of 2008. Financial co-operatives and credit unions will be keen to help but doing so will require the support of regulators and financial backing from government.