TransUnion cautious about future payments despite recent improvement

While credit performance has improved during recent reporting periods, TransUnion is cautious about the sustainability that contract holders can continue to make their monthly auto-finance payments along with other credit obligations. That sentiment stems from findings through its latest consumer survey.

TransUnion reported on Thursday that serious delinquency rates in August improved once more across all consumer credit segments — including auto financing, credit cards, mortgages and personal loans — even as the number of people in accommodation programs dropped for the second consecutive month.

That assertion is part of TransUnion’s latest Monthly Industry Snapshot, which also points to potential challenges in the near future.

Since the start of the pandemic in March, TransUnion indicated consumer performance has been mostly positive with continued month-over-month improvements for many of these credit products.

“A significant percentage of consumers utilized financial accommodations to defer or freeze payments during the early stages of the pandemic. As the first wave of consumers exit accommodation and a period of excess liquidity, they are returning to their debt obligations and continuing to perform,” said Matt Komos, vice president of research and consulting at TransUnion.

“Consumers who still remain in hardship could be more likely to face income losses and thus have more difficulty exiting these programs than consumers who may have entered into hardship programs as a precautionary measure,” Komos continued in a news release.

August Industry Snapshot of Consumer-Level Delinquency Performance by Credit Product

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

The August Monthly Industry Snapshot Report found the percentage of accounts in “financial hardship” continued a downward month-over-month trajectory for auto financing, credit cards, mortgages and personal loans from the months of July to August.

TransUnion explained its 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.

Across all credit products, analysts determined the percentage of accounts in financial hardship during the month of August dipped to pre-May levels. Accommodation programs provided consumers with payment flexibility and added liquidity during the course of the pandemic.

However, as the number of consumers leveraging such programs decreases and government relief funds are not expected to renew, TransUnion acknowledged many consumers may find themselves at what the credit bureau called “an inflection point.”

August Industry Snapshot of Financial Hardship Status by Credit Product

Source: TransUnion

Potential challenges on the horizon

While serious delinquency rates continued to decline in August, TransUnion observed some negative movement in 30-day delinquency rates.

Analysts explained this metric — which may serve as an early indication that an account will default and potentially be charged off — increased slightly in August for the two largest payments consumers often have to make: their vehicle and mortgage payments.

“This uptick for both products could signify that consumers are starting to roll forward on deferred payments as they come off of hardship programs,” Komos said.

“However, it’s still much too early to tell. It could simply be a missed or delayed payment that is late by a few days or weeks, though the consumer’s intention is still to make the payment,” he added.

Komos mentioned that close attention is being paid to delinquency levels as TransUnion’s latest Financial Hardship Survey from the week of Aug. 24 found that COVID-19 continues to financially impact consumers.

While TransUnion discovered the percentage of financially impacted Americans dipped to 52% — the lowest level since the ongoing survey series began in March — the concern among impacted consumers regarding their ability to pay bills and other obligations remains high (75%).

According to the survey, TransUnion reported that about one-third of impacted consumers are turning to savings to pay bills or loans and 13% cited they plan to open new credit cards. Despite these concerns, data from the monthly snapshot found that consumers are continuing to make payments as the average credit card balance per consumer dropped to $5,127 in August, compared to $5,686 the previous year.

In addition, TransUnion noted the average Aggregate Excess Payment (AEP) — defined as the average amount consumers are paying over their respective minimum payments — increased to $330 in August. Although analysts acknowledged that average is similar to what they observed at the same time last year when it came in at $300.

“Many consumers have continued to make payments even when enrolled in financial accommodation plans,” Komos said.

“The real litmus test in regards to consumer credit health will become apparent in the coming months when these safeguards begin to expire and consumers have less payment flexibility,” Komos went on to say.

TransUnion’s August Monthly Industry Snapshot 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.