Banks helped us avoid a repeat of the 2008 financial crisis

As unemployment rates spiked and the stock market foundered, many believed that the pandemic would lead to a repeat of the 2008 financial crisis with rising credit defaults and risk to the entire financial system. Yet, that’s not what actually happened.

Defaults and delinquencies declined rather than increased. The housing and mortgage markets reached record levels of activity. While households from a wide range of socioeconomic backgrounds were impacted regardless of whether or not they were homeowners, many were able to get the assistance they needed. Victims of the economic downturn were not blamed because society understood that it was not their fault — and this attitude was core to institutions’ response.

While economies around the world contracted significantly, the recovery for economies and individual households was positively influenced by the actions of the state. During the pandemic, the government has provided a range of assistance — and unlike in 2008, a host of financial institutions have, too.

In 2008, the financial industry was simply not up to the task of working with borrowers in trouble. Innovation and technological advances were not yet widely available in the servicing industry nor were there regulatory requirements that set forth standards for borrower communication and notification. Some lenders failed to realize that there were solutions that both helped people avoid defaults and foreclosures, but could also enhance their organizations’ bottom line.

In the last decade, the financial industry has invested in people, technology, and systems that are more responsive to borrowers facing a financial shock, as well as policies that allow for partial or deferred payments. Families needed the stimulus funds just to stay afloat, and that available assistance was used differently by different groups of cash-strapped households. According to one survey in partnership with Elevate’s Center for the New Middle Class, about half of nonprime and a third of prime respondents used stimulus funds to pay for food.

While stimulus funds, rising savings, and reduced spending have all combined to help families make ends meet, and loan delinquencies have declined to record low levels, financial services’ assistance has played a major role, too.

By prioritizing people’s financial health — the state of a person’s financial affairs, the financial services industry has been able to keep their customers, and retain or even grow their lending footings. Financial institutions have pursued a consumer-focused strategy in a variety of ways with services like call center agents sharing resources with their customers in need and self-service financial technologies that meet people where they are. According to our 2021 survey of call center agents, 93% said that offering customers access to financial resources helps them reduce monthly expenses.

Now, two years after the start of the pandemic, it is clear that American families are still not out of the woods. Savings levels are coming back down from their high levels. Forbearance for federal student loans will end. Rising debt payments may be squeezed as people juggle rising prices. In a sample of over three million financial assistance resources accessed by American families in 2021, almost half were for basic necessities to pay for food and utilities and try to make up for lost income or jobs.

Beyond mortgages and credit cards, other industries can benefit from making financial health resources part of what they provide their customers. Landlords, service providers, and other firms that rely on regular payments may be able to unlock value by offering people access to referrals and flexibility that improve their business.

This approach takes a longer-term view of customers as people who face day-to-day challenges. With technological and other advances, a focus on financial health is a win-win for financial institutions and the families they serve — and this focus needs to remain front and center.

Authors:

Rochelle Gorey is the CEO and Co-founder of SpringFour, the only social impact fintech that helps financial institutions give customers the support they need to regain financial control. J. Michael Collins is a Co-founder of SpringFour and the Fetzer Family Chair in Consumer & Personal Finance at the University of Wisconsin.

J. Michael Collins is Co-founder of SpringFour and the Fetzer Family Chair in Consumer & Personal Finance at the University of Wisconsin