USAA Prepared to Extend Credit to Members if Debt Ceiling Affects Military Pay
USAA, the popular financial services firm catering to military members, veterans and their families, is prepared to extend credit if the debt ceiling affects military pay, the company has announced.
The debt ceiling is the total limit on outstanding federal borrowing as authorized by Congress. The Treasury Department has projected that unless Congress extends the federal limit on borrowing.
If it doesn’t, the U.S. Treasury must make scheduled interest and principal payments on outstanding bonds, but it cannot borrow additional money except as debt is paid off. This would likely force the federal government to cut or eliminate a significant percentage of its day-to-day spending. Nearly everything is on the table – including military pay.
The Treasury Secretary expects the Treasury to run out of creative financing options on the debt as of Thursday, 17 October. At that point, we may begin seeing paychecks to servicemembers, Social Security beneficiaries, federal employees, and even disabled individuals qualifying for VA benefits shorted or zeroed out until further notice.
Should that occur, USAA has indicated it will offer zero-interest payroll advance loans to members of the military – including members of the National Guard and Reserves. The offer also extends to military retirees and veterans receiving VA benefits.
The catch: You have to have been receiving these benefits via direct deposit at USAA Federal Savings Bank, or another USAA account. You have to have already received at least two direct deposit accounts over the past 60 days into your USAA account. The total maximum loan under this program is $6,000 per member.
The maximum loan amount, initially, will be the amount of a bi-monthly direct deposit, or half of the deposit, for those paid monthly.
USAA has also indicated it is willing to work with affected members in arranging deferrals on some bank loan payments. It may also refund some fees, provide extended or flexible terms on insurance payments, and allow for penalty-free withdrawals of funds from certificates of deposit. Any loans with payments deferred would continue to accrue interest.
Loan proceeds will be credited to the USAA bank account, and will be debited upon the next scheduled direct deposit date.
USAA expects to email those eligible. If you receive an email – or believe you should have received an email – visit the USAA website at USAA.com and visit the My Offers section of the site.
Making this a zero-interest loan is a very generous offer – but it also underscores the advantage of doing business with a financial services firm with a mutual structure. While there are variations on the specifics, USAA is jointly owned by its members. It does not trade shares on the exchanges, nor is it owned by outsider stockholders who expect to receive dividends every year. This gives its directors the freedom to make decisions that are strictly in the best interests of their members.
The members believed that extending this benefit was more valuable to members during a crisis than an increased dividend payment down the road.
We agree and applaud USAA for taking this stand – as well as having the foresight to raise capital in advance to fund it.
That said, USAA members still need to be careful: This is not an open-ended loan. Under the terms already specified, it’s limited to about 2-weeks direct deposit, or $6,000, whichever is less.
USAA has not committed to deferring the collection until after the debt ceiling is authorized – assuming Congress does authorize an increase – and normal payroll and benefits disbursal is restored. If USAA zaps those accounts, as scheduled, but funding to pay salaries and benefits is not fully restored, members could still find themselves in a bind.
Even under the best of circumstances, unless Congress approves back pay, members could still find themselves in a tight spot. If you get advanced a two-week direct deposit, and USAA zaps your account two weeks later for the amount funded, you’ve just delayed the problem by two weeks. It’s not this week’s deposit that gets cleaned out – it’s the next one. So this loan doesn’t do much but give you a little breathing room, and a couple of weeks to figure things out.