By J. Scott Scheel, Commercial Academy Founder and CEO
COVID-19 has the potential to have an unprecedented financial impact on our economy. Even our most respected economic authorities are uncertain as to how we can best make our way through it.
In prior emergencies, we all witnessed what happened when ambitious proclamations were made promising help, relief and support. In the end, there was very limited benefit for those who really needed it most, and typically the only assured winners were the banks.
People are justifiably nervous.
Government action thus far regarding COVID-19 has failed to recognize the strength of the American workforce. The American people do not want to stop work. We are being told to stop.
Of course, we all want to do our part to flatten the curve and end the virus quickly. But if we are told that 95% of positive cases will only experience mild to moderate flu symptoms, why is it acceptable for all to sacrifice our future, our family’s well-being, and even risking our businesses and our careers? Are the country’s leaders willing to make a sacrifice for us that will actually benefit hard-working people?
Our plan has some similar components to the 90-day mortgage relief plan put forth by New York Governor Andrew Cuomo. Our plan goes further in addressing all revolving and installment debt. I firmly believe that the best solution is the COVID-19 Moratorium and Forbearance Debt Relief Act (MAFDRA). It is extremely simple and fair.
The first phase of MAFDRA will provide for a full forbearance of payments and interest for a duration equal to the length of the Federal State of Emergency and mandatory government-forced quarantine. The exact length of time cannot be determined at the inception, but it should begin immediately, and last for a minimum of 90 days.
The second phase of MAFDRA will aid the fiscal quarter(s) after the recovery date, during which time businesses will remobilize, restock and restaff. The nation will greatly benefit from this second rebuilding phase before resuming to its full economic velocity.
This plan will work if MAFDRA mandates that forbearance applies to all debt service payments, including bank debt, real estate, automotive, equipment finance, credit card payments, government payments, property
taxes and so on. It is critical that federal legislation mandate compliance by all lending institutions registered in the U.S.
An important feature of MAFDRA is that it provides for NO blanket cash payments from the government to individuals and NO debt forgiveness by any party. All payers will resume making their payments at the conclusion of the program, starting on a federally mandated date, in the same place where they left off before MAFDRA went into effect. This requires an across-the-board moratorium on interest. Everyone, including business owners, should be impacted in exactly the same way.
MAFDRA allows everyone to live in peace and to rest assured during the forced exile. No one needs to lose their home, their business, their livelihood, their life’s work or any of their assets if they comply with the mandates to act in the interest of the common good.
For the average American worker, the largest monthly payments in forbearance would be applied to mortgages, vehicles, credit cards and student loans. Millions of people could then tend to the two essential remaining primary expenses of providing food for their families, and energy for their homes. (Fortunately, with low energy costs and warm weather due, utility costs should also decrease soon.)
Federal legislation can allow accountants to “skip” these months in all financial documents. April, May and June “financially didn’t happen” and could simply be added to the back of all amortization schedules. Everything else remains the same.
Without the additional economic stress of making debt payments, Americans would tend to the health of themselves, their families, and the larger community’s most vulnerable members. The previously announced $1000-plus checks and expedited unemployment benefits would help many affected by this nationwide crisis.
Reducing economic stress on small business owners could enable them to maintain some employees who would otherwise have been laid off, and keep doors open that they otherwise would have had to close.
Previous federal crisis initiatives tended to invest massive amounts of cash into short-term, poorly executed solutions. These initiatives failed to achieve their intended results. Eventually, the economy required trillions of dollars in “bailouts” to avoid the total banking collapse caused by defaulted loans.
MAFDRA addresses the root cause of these failures. The American workforce is happy to resume their debt payments when the economy returns to pre-crisis levels. Why cause losses on all sides?
Thus, MAFDRA should include provisions that lending institutions must make small business loans and lines of credit available through this crisis. This will have a meaningful impact. The last time that interest rates dropped to these levels, lenders often chose to stop or dramatically slow the underwriting and processing of loans due to “uncertainty.” Since the loan defaults won’t occur this time, banks can take an active role in jumpstarting the economy without fear of being shut down due to excessive defaults (such as happened in the Great Recession).
Lastly, to ensure that critical services and vital needs are met for all individuals, we should enact a 90 day moratorium on utility service interruptions. These billings will be paid by spreading them over a to-be-determined period of time, post-crisis, with a reasonable interest rate. Perhaps we offer an incentive for those who are able to pay these on a timely basis.
MAFDRA’s “time-out” scenario can be our solution. We keep it simple, so the country, and the world can return to normalcy. This time of forbearance will keep us united throughout this process, and when this is over, everyone will be allowed to return to their posts to responsibly resume paying their debts with certainty that they will not be destroyed by this state of emergency.