The Early Effects of the COVID-19 Pandemic on Consumer Credit

  • Source: files.consumerfinance.gov

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Article Highlights:

In August 2020, the Consumer Financial Protection Bureau (CFPB) Office of Research published a Special Issue Brief (Brief) on the early impact of the coronavirus pandemic on consumer credit. The Brief is based on the CFPB’s Consumer Credit Panel data from January 2019 through June 2020. Key findings are noted below.

  • New Delinquencies – The reported rate of new delinquencies on mortgage, auto, student, and credit cards loans fell between March 2020 and June 2020. CARES Act restrictions on credit reporting combined with consumer stimulus may have contributed to this effect, given the sharp increase in unemployment.
  • Lenders Offered Borrower Accommodations – From March to June 2020, there was an increase in the share of accounts reporting zero payment due despite positive balances, indicating some type of payment assistance. This effect was largest for first-lien mortgage loans, and was most pronounced for borrowers in areas with higher rates of COVID-19 and larger changes in unemployment.
  • Credit Availability Declined – There was a small reduction in available credit card debt between March and June 2020. The reduction was caused by slight decreases in credit limits on existing credit cards lines and an increase in closure of accounts by card issuers. High credit score consumers accounted for most account closures.
  • Consumers Did Not Rely on Credit Card Debt – Credit card balances declined by approximately 10 percent between March and June as consumer spending slowed. Card balances declined across all demographic groups.

Taken together, the findings of the CFPB Brief provide support for the idea that lender accommodations and government assistance were effective in reducing the impact of COVID-19 on consumer credit reports in the first three months of the pandemic. Whether these effects persist remains to be seen.

Author

Lynn Woosley

Lynn Woosley is a Senior Director with Treliant.  She is a seasoned executive with extensive risk management experience in regulatory compliance, consumer and commercial credit risk, credit and compliance risk modeling, model governance, regulatory change management, acquisition due diligence, and operational risk in both financial services and regulatory environments.