Credit card companies and banks are always quick to get a verbal lashing from consumers upset over excess fees and other penalties incurred to access their cash.
But amidst the coronavirus, a good number of the major card issuers are in fact stepping up to offer their customers — likely dealing with job loss and general anxiety — forms of financial relief. Take payments platform Discover Financial Services (DFS).
The $10 billion market cap Discover has allowed customers to defer payments on various loans and removed early withdrawal fees for those with CDs. For small business owners, Discover has helped to facilitate PIN-less transactions as shoppers no longer want to touch keypads.
“We are clearly getting a lot of demand from customers calling us to extend their payments. I think there is tremendous uncertainty out there in terms of how much impact all of the government stimulus will have to offset the stress that consumers are feeling right now,” Discover CEO Roger Hochschild said on Yahoo Finance’s The First Trade.
Hochschild also said on March 13 — the day Discover moved to work-from-home requirements for employees — that there will be no layoffs. The company has donated $500,000 for U.S. food-relief efforts and $500,000 for WHO international relief.
Meanwhile, Bank of America said customers could request refunds for overdraft fees and ask to defer payments on credit cards. Auto, mortgage and home equity line deferments are also being offered by Bank of America. At JPMorgan, it’s extending a 90-day grace period for credit card, mortgage and auto loan/lease payments.
Banks are ‘the lender of last resort’
The downside to these feel-good actions is that they come at a cost for banks and card issuers already dealing with the negative shock that is 0% interest rates from the Federal Reserve. That’s one of the reasons why the Invesco KBW Bank ETF has tanked 40% in the past month. Another component to the ETF’s plunge — which tracks the performance of major bank stocks — is that the banks have started to build robust credit reserves to deal with rising charge-offs by cash-strapped unemployed clients.
“I think in times of need, banks have always been the lender of last resort to their customers. And obviously, you’ve got to be a disciplined capital provider because undisciplined loans are bad. So, you take your calculated risks. We’re making additional loans. We’re adults. We know that if the economy gets worse, we’ll bear additional loss, but we do forecast all of that so we know we can handle really, really adverse consequences,” JPMorgan CEO Jamie Dimon told analysts on an earnings call Tuesday.
Dimon added, “So, we want to do our job. If we can help the country get through this, everybody’s better off. If we lose a little bit more money in the meantime, so be it.”