Consumer Financial Relief Strategy Recommendations in the Midst of COVID-19

Financial institutions that serve consumers will face questions about the inability to make loan payments on time, or even at all, in light of the financial and economic effects of COVID-19. While this virus has been declared as a pandemic worldwide1, the U.S. is executing a preparedness plan designed to curb the spread of the virus; thus, reducing its severity level on the population. Many financial institutions are now considering specific plans to provide financial relief to consumers.

Proper planning should be taken when offering this payment relief, since it will be offered to a consumer base with credit extended within the provisions of various fair lending laws and regulations. Historical payment relief measures discussed by regulatory bodies recommend that financial institutions work with consumers in a constructive manner to provide relief as a means to slow a negative economic impact. However, since these consumer loans were extended under the provisions of Regulation B, caution is advised in the development and deployment of any relief program in order to avoid any discrimination or disparate treatment. Any product offered should be available to a defined group of consumers and deployed in an informative manner, so this group is aware of the available remedies. This must be applied with a documented and consistent approach.

How to Offer a Consistent Financial Relief Program
  1. Define Reason for Financial Relief
    The application of any financial relief product should be the result of a specific set of circumstances; otherwise, this relief will be expected to be offered to the entire consumer customer base of your financial institution. In this case, the set of circumstances surrounding the measures taken relates to reducing the spread of COVID-19 and the resulting financial and economic impact. Although it may not be possible to validate the individual circumstances of each consumer who requests relief, the reasons for the request should fit your established guidelines. Additionally, these guidelines should have a finite ending. While it may not be feasible to establish a date at this time, it is necessary to identify that the programs will conclude with at least a general representation of what the end will look like.
  2. Establish Guidelines for Inclusion
    As stated, although it may not be possible to validate the facts and circumstances of each consumer relief request, it is necessary to develop and state specific criteria. While this may vary by geographic area, these guidelines should include criteria such as job loss, reduced hours, inability to work due to self-quarantine measures, inability to work due to COVID-19 related illness, etc. The responsibility rests with the consumer to request relief and to provide the reason for their hardship. Each financial institution should then evaluate these requests against their defined criteria and document these in a consistent manner.
  3. Notify Consumer Customer Base
    The most prudent method to notify the consumer customer base is to post the relief plan and guidelines online and notify through email channels, as most consumers likely have access to these methods. It is also prudent to align notices with any access to online banking, ATM utilization and postings in lobbies, if your lobbies remain open. Establish notification methods that are representative of the ability of your consumer base to conveniently receive the notices in a timely manner.
  4. Offer Relief Options
    The options offered as a relief measure should be made available in their entirety to each consumer upon request. Each relief remedy may not be applicable to each individual customer based on their specific circumstances but should be made available as a measure of consistency. This will inform the consumer fairly and allow them sufficient input to identify the measure that best meets their needs. It is likely that many interactions with your customers will be by telephone or through an online inquiry. Whether the inquiry is made in this manner or in person, disclosure of the offered relief options should be provided as early as possible in the process, in writing or electronically, specifically to the consumer making the inquiry and request.
  5. Select the Best Option
    The knowledge and expertise of your personnel is paramount in aligning the best relief product with the circumstances of each consumer. While the consumer should be made aware of all relief measures available, care should be taken to align the selected option to the consumer with full consideration of the desires of the consumer.
  6. Finalize Documentation
    As stated, written documentation should be provided to consumers making a request for relief that explains the relief products and services offered as soon as possible in the process. After the customer decides on the best alternative, appropriate documentation should be executed, as necessary, to affect modifications to existing terms and conditions of the credit documents. Such modifications may not be necessary depending on the service offered.

The type of product or service offered as a relief measure by your financial institution will certainly vary based on the financial and economic severity to the regional geography that you serve. The basic premise for relief likely will be reflected in a consistent context throughout varying geographies. Those will include reductions in fees and various forms of payment relief. Historically, institutions have waived late charges, reduced interest rates, offered payment deferrals of principal and both principal and interest, and halted repossession and foreclosure actions. Again, care should be taken in making these changes to provide the appropriate legal notices to customers, but all represent an effective avenue to provide financial relief.

Consistency in the development of the relief program, as well as in the deployment of the program, will drive the success of your financial institution to serve your customers and provide the appropriate structure to be reviewed in relation to legal and regulatory compliance. If your policy currently does not address this type of situation, ratification of the general direction is recommended. This will certainly assist with the current COVID-19 crisis but also will be useful for other events that require the application of consumer relief.

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Jon Tomberlin
Managing Partner, Financial Services


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