TransUnion: Accounts in ‘financial hardship’ level off in June

TransUnion is noticing that credit-performance metrics are starting to change as various actions taken by finance companies because of the coronavirus pandemic begin to run their initial duration.

A new TransUnion consumer credit snapshot released last week found the percentage of accounts in “financial hardship” started to level off for credit products such as auto financing, credit cards, mortgages and personal loans during the month of June. TransUnion explained some of this leveling off was due, in part, to accounts coming out of financial hardship status in June.

Analysts noted that accounts in financial hardship — defined by factors such as a deferred payment, forbearance program, frozen account or frozen past due payment — have largely kept delinquency numbers in check as consumers continue to navigate the ongoing impacts of COVID-19. For example, auto defaults are now at the lowest reading in 10 years.

TransUnion’s financial hardship data includes all accommodations on file at month’s end and includes any accounts that were in accommodation prior to the COVID-19 pandemic.

Analysts acknowledged accommodation programs have provided consumers with much-needed payment flexibility as external triggers such as rising unemployment and a decrease in government relief funds have started to shape the future outlook of the consumer wallet.

Source: TransUnion

“In the early months of the pandemic, unemployment benefits and relief from the CARES Act gave consumers a bit of a cushion, leaving the consumer fairly well-positioned from a cash flow perspective,” TransUnion vice president of research and consulting at Matt Komos said in a news release.

“Lenders have been working with consumers during this time of uncertainty by extending financial hardship offerings that help them understand and manage their financial situation,” Komos continued. “These accommodations have been working as intended and have helped thwart a material breakdown in delinquency performance in the near-term.”

Since the pandemic began in March, TransUnion indicated delinquency performance has held steady, with credit products across auto, credit card, mortgage and personal loans all showing a recent month-over-month improvement in performance from May to June.

TransUnion also reported that credit cards saw the greatest decline in delinquency over this period with borrowers 90 days or more past due decreasing from 1.76% to 1.48% month-over-month. This decrease also held true for accounts in 30-day delinquency status — what analysts classified as an early indication of consumer distress — by decreasing from 3.06% to 2.66% from May to June. That movement is compared to the 30-day delinquency reading of 3.49% recorded last June.

Analysts went on to say consumer balances for credit card also showed a 7.41% year-over-year decline from June of last year to June of this year as well as a monthly balance decrease of $43 since May. TransUnion pointed out these decreases may signify that consumers are continuing to manage debt prudently and are paying down their existing card balances.

At the same time, TransUnion reported overall consumer credit lines have declined from $24,641 in June 2019 to $23,724 in June 2020, which is also down from $23,800 in May of this year.

“These are signs of a credit market that continues to function despite the spike in consumer unemployment,” said Paul Siegfried, senior vice president and credit card business leader at TransUnion.

“When there is uncertainty in the market, consumer credit performance is highly scrutinized and new accounts generally will not receive the same type of credit limit as they might have prior to a crisis,” Siegfried continued. “However, the longer individuals who are not in an accommodation program perform well, the more likely additional credit will be extended.”

*Credit card delinquency rate reported as 90+ DPD per industry standard; all other products reported as 60+ DPD. Source: TransUnion

Over the course of the pandemic, TransUnion said a substantial segment of consumers have continued to make payments but are also proactively engaging with their credit providers to discuss payment options.

TransUnion’s ongoing Financial Hardship Survey indicated that of consumers with a current financial accommodation on a loan, 32% are in favor of repayment plans that will allow for paying down debt gradually while continuing regular payments. A smaller percentage (18%) preferred paying off all postponed payments with a lump sum and 21% indicated they would like financial accommodations to be extended further.

“By many accounts, we are still in the early phase of the pandemic, and there is some uncertainty still around the nature of the economic recovery we may experience. It will likely be months before the financial impacts of COVID-19 begin to materialize from a credit performance standpoint, and some of this will be dependent on any additional government actions,” Komos said.

During this period of time, lenders will need deeper consumer insights to better calibrate risk across their portfolios and make more informed decisions,” he went on to say.

TransUnion’s June Monthly Industry Snapshot Report features insights on consumer credit trends around personal loans, auto financing, credit cards and mortgage loans.

Additional resources for consumers looking to protect their credit during the COVID-19 pandemic can be found at transunion.com/covid-19.