In what has become a regular event, the federal government might officially close as of 12:01 AM, Friday, October 1, 2021. According to the Philadelphia Inquirer, this will be the sixth occurrence, with events in 2019, 2018, 2013, 1996, 1995, and three other times since 1980. Practically speaking, the shutdown is not “the end of the world,” and we can undoubtedly expect that legislators will settle their political differences. The event will have an impact on the credit card ecosystem for a brief period; the most extended shutdown on record was 35 days. Expect a slight increase in transactions and perhaps an increase in 30 day delinquency coming in December billing cycles.
- Most Americans would notice the disruption in one way or another. Many national parks would likely shut down, while mortgage and other loan applications could be delayed because the IRS could stop verifying income and Social Security numbers, according to the Committee for a Responsible Federal Budget (CRFB), a nonprofit group that focuses on fiscal issues.
- The biggest impact may be felt by the hundreds of thousands of federal workers who are likely to be furloughed if a shutdown occurs, experts say.
With the push to digital credit card engagement, not having the post office deliver credit card bills will not create a banking issue. However, new card issuances, which peak at about 80 million per year, will likely slow down unless consumers arrange for alternative delivery via UPS or FedEx. According to the Inquirer:
- “Well, we have some history here, and because of that, we know that some companies would be affected. So, for example, many small firms that do business — indirectly or directly — with the federal government could see cash flow dry up, at least temporarily.”
- “Small companies in need of government help would also find themselves in limbo. A government shutdown would essentially stop these types of services that the federal government provides to most firms. So if you’re waiting for a passport, an OSHA safety inspection, a decision on a federal court case, regulatory clearance on a product, or a patent approval, or if you need help from the Internal Revenue Service, you could be twiddling your thumbs for a while.”
- “And when the government eventually does re-open, all of the back payments and payroll due will be made whole. But until that happens, and while the theater in our nation’s capital plays out, your business must be prepared for the worst.”
According to The Hill, “The federal government employs nearly 9.1 million workers, comprising nearly 6 percent of total employment in the United States.The figure includes nearly 2.1 million federal employees, 4.1 million contract employees, 1.2 million grant employees, 1.3 million active-duty military personnel, and more than 500,000 postal service employees.”
With an average of 4.3 credit cards per person in the U.S., delayed payrolls will disrupt 30-day account delinquencies, mainly if the political drama lasts more than five days. So, for credit card issuers, expect the political drama to continue. There will be some short-term implications, such as a bump in transaction volume and a rise in early delinquency, but this too will pass.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
