“We want evacuees to come home, for the best of reasons — because they have a real chance at a better life in a place they love”, said President Bush, addressing the nation from Jackson Square in New Orleans in the aftermath of Hurricane Katrina. Bush has a vision of renters becoming homeowners, and new minority-owned businesses flourishing in the Gulf Coast.
The president’s vision is noble. But it will remain just dream unless something is done to help Katrina victims with their financial burdens: rising debt, lost property, and, especially, damaged credit scores.
Many lenders are doing their part to help out by granting Katrina victims unique accommodations, such as a 30-day deferment of outstanding credit payments and a 90-day deferment for mortgage payments. Late fees and overdraft fees will be waived for 90 days, and delinquencies on credit cards and mortgage loans won’t be reported to the national credit bureaus until after 90 days.
“We are taking these steps to help consumers who have suffered incredible hardship as the result of Hurricane Katrina,” said Charles Scharf, head of Retail Financial Services at Chase.
While well intentioned and laudable, for many Katrina victims, it won’t be enough. Americans are famously poor savers in the best of times. Many of Katrina’s victims are likely to lack the reserve of resources to get back on their feet without going deeper and deeper into debt. Consequently, credit counseling is needed to help the victims of hurricane Katrina to have a fair chance to rebuild their lives and their communities.
It’s easy to see why.
First, there is the uncertainty. Many victims simply don’t know what their banks are doing for them. Dwayne Lee received a $2000 expedited assistance check from FEMA for himself, his wife and his three-school aged children. Unemployed, and still living in a motel through the assistance of Red Cross, he briefly considers using some of the money to make his auto loan payments, concerned that his car might be repossessed and he won’t be able to return home.
Second, some lenders are not doing enough. Christine Webster contacts her mortgage company and is informed that while her September payment is deferred for a month, no other accommodations are available. Unsure whether she can even return to her home, and temporarily lacking an income, she chooses to skip this month’s payment.
Finally, there is the lack of alternatives. Bianca Polk has accumulated over $1000 in new credit card debt in three short weeks, spending on basic survival expenses like food, shelter, and transportation. And she does not know when or where she will settle or when she will be employed.
As President Bush rightly said, “Important work can be done by everyone.”
Throughout the country, credit counselors should reach out to victims to provide this much needed assistance. Further, all lenders and creditors should review their policies for Katrina victims to make sure they really are enough to at least give those victims a fair chance to rebuild their lives without having their credit ruined and their interest rates hiked.
The federal government can do their part too. Billions of dollars have been promised by the federal government to assist the dislocated. Recovery funding should also be directed to increase the capacity of accredited nonprofit credit counseling agencies through organizations like the National Foundation of Credit Counseling to serve the needs of Katrina victims. A year of free credit counseling should be a standard component of the assistance package for FEMA recipients.
These measures are necessary because credit is the mechanism by which Americans start new businesses or acquire new homes. And these are precisely the sorts of things hurricane victims will need to do to rebuild their damaged lives and communities.
Michael Turner is the President and Scholar of the Information Policy Institute. Dr. Turner is a prominent expert on privacy issues and how data flows between institutions.
Alyssa Stewart Lee is a Senior Research Analyst with the Urban Markets Initiative the Metropolitan Policy Program at the Brookings Institution. Her work focuses on private industry information issues. Over 25 members of her family were affected by Hurricane Katrina, three of whom are highlighted in this piece (their names have been changed to protect their privacy).