Impact of the fiscal cliff on credit unions

December 21, 2012 at 10:22 am 1 comment

Credit Union Magazine offers insight into what the impact might be on credit unions in the worst-case scenario that we do fall off the “fiscal cliff.” So far, no deal has been made to avert the cliff, although the Credit Union National Association’s (CUNA) senior economist Steve Rick predicts that it’s likely some deal will be made that essentially kicks the can down the road.

The major impacts on credit unions will be due to the uncertainty faced  by their members. If the U.S. economy is thrown back in a recession, people will be fearful of losing their jobs, will have less disposable income, and overall will be less inclined or able to take on any additional risk.

“Members wouldn’t want to risk taking out new loans because they’d be afraid of losing their jobs,” Rick explains. “So loan growth would be significantly curtailed; probably back to the levels we saw in 2009, 2010, and 2011. So we could go back to zero loan growth. “That would affect our income,” he continues. “Fewer loans on the balance sheet and more money in the investment portfolio would mean dropping net income for credit unions. That would have a severe impact on the bottom line going forward.”

A drop in income for credit unions means that they will be more restricted in their own operations and programs. Things like new branches and new hires will not be feasible. But ultimately, it’s the impact on credit union members that will be the biggest blow.

Credit Union Magazine highlights one credit union that is trying to get ahead of the game by providing services to members in the case we do drop off the cliff. Belvoir Federal Credit Union in Virginia will offer members:

  • A fiscal cliff emergency loan, which allows members to borrow up to $5,000 at 4.99% (0% for the first 60 days) with a maximum 12-month term. Members may defer their first payment for 60 days.
  • Loan workouts;
  • A no-charge skip-a-payment option for consumer loans; and
  • Free financial coaching.

Hopefully other credit unions will follow Belvoir’s lead in addressing their member’s concerns and challenges, no matter what the outcome of the current fiscal policy debate. Educating members about the fiscal cliff impacts– and the impacts of fiscal policy overall–  is also key. The decisions made in Washington are not just about policy debates. Every individual, family, and community is affected, and it’s important that people are aware of and engaged in these important debates– and that they have financial institutions ready and willing to help them navigate these uncertain economic times.

This will be the last post of the year for The Support Center. Wishing you all the best this holiday season!



Entry filed under: Credit Unions, Economy. Tags: , , , , .

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