Chicago,
20
May
2020
|
02:00 PM
America/Chicago

As COVID-19 Impacts the Consumer Wallet, Federal Programs and Lenders Provide Temporary Relief

TransUnion’s quarterly Industry Insights Report and monthly industry snapshot analysis shed light on consumer credit trends during the pandemic

A new TransUnion (NYSE: TRU) report found that serious delinquency rates were mostly stable between April 2019 and April 2020 and all delinquencies have dropped between March and April 2020. However, the true consumer credit picture may be distorted because of federal programs and those provided by lenders to alleviate some of the financial hardships borrowers are facing.

To gain greater insight into the payment behaviors of consumers during the first two months of the COVID-19 pandemic, TransUnion (NYSE: TRU) supplemented its quarterly Q1 2020 Industry Insights Report with a newly created Monthly Industry Snapshot Report, highlighting the consumer credit market for the month of April. TransUnion found that the percentage of accounts entering “financial hardship” status has risen dramatically for credit products such as auto loans, credit cards, mortgages and personal loans. Financial hardship status is defined by factors such as a deferred payment, frozen account or frozen past due payment.

“Americans are facing challenging economic times, but it is still too early to tell the long-term implications of this pandemic for the credit markets,” said Matt Komos, vice president of research and consulting at TransUnion. “Consumers are currently performing relatively well from a credit perspective, though this is likely due to their use of federal stimulus packages, tax refunds, unemployment benefits and forbearance programs. These factors have led to improved cash flow for some consumers in the near term, but a critical component to the future of consumer credit is a better understanding of how loans that have been deferred will be repaid. A clearer picture regarding serious delinquency rates and other credit variables will help businesses and consumers transact with confidence.”

Monthly Industry Snapshot of Consumer Performance by Credit Product

Timeframe

Auto

Credit Card

Mortgage

Personal Loans

Percentage of Accounts in Hardship

April 2020

3.54%

3.22%

5.00%

3.58%

March 2020

0.64%

0.01%

0.48%

1.56%

April 2019

0.51%

0.03%

0.48%

0.30%

Percentage of Borrowers 60 or More Days Past Due (DPD)

April 2020

1.33%

1.87%*

1.27%

3.27%

March 2020

1.37%

1.96%*

1.40%

3.40%

April 2019

1.11%

1.78%*

1.32%

3.35%

*Credit card delinquency rate reported as 90+ DPD per industry standard

Despite growing financial hardship within the consumer credit market, the analysis found that consumers are paying down their credit card balances with the average balance per consumer decreasing from $5,645 to $5,437 between March and April 2020. Consumers may be potentially paying down balances to ensure further access to liquidity until there is more clarity as to when shuttered businesses begin to reopen. This also reflects a slowdown in spending behavior, as uncertainty about the future has impacted consumer sentiment and confidence. This trend is significant because credit cards are the most widely used credit product in the U.S. As of Q1 2020, there were 457.6 million credit cards with balances of $814 billion.

A similar phenomenon is occurring in the personal loan market as the aggregate excess payment (AEP) of consumers between March and April increased from $194 to $215. AEP measures, on average, how much consumers are paying over their respective minimum payments.

In parallel, TransUnion has been conducting consumer research to learn more about the impacts of COVID-19 on consumer finances. The most recent survey from early May found that of the 59% of Americans who said their household income has been negatively impacted by COVID-19, two in three (66%) say they are concerned about paying their current bills and/or loans. Of this population, 12% state that they are using accommodations offered by their lenders such as forbearance. In addition, 31% of impacted consumers plan to pay a partial amount on their next loan payment. Approximately 44% of impacted consumers also state that they have reached out recently to companies where they have accounts to discuss payment options.

“Forbearance and deferment programs are currently providing consumers with payment flexibility and enabling them to prioritize which credit products to pay when faced with limited resources. While these programs are providing consumers with temporary relief, banks and lenders are looking for further regulatory guidance as to what next steps should be taken once stimulus packages dry up. We are likely to have a better sense of the true financial health of consumers impacted by COVID-19 in the coming months,” said Komos.

TransUnion’s Q1 2020 Industry Insights Report and Monthly Industry Snapshot Report features insights on consumer credit trends around personal loans, auto loans, credit cards and mortgage loans. For more information, please register for the TransUnion Q1 2020 IIR Webinar. Additional resources for consumers looking to protect their credit during the COVID-19 pandemic can be found at transunion.com/covid-19.

Record Number of Consumers Have Access to a Credit Card

Q1 2020 IIR Credit Card Summary

The first quarter of 2020 saw continued growth in the credit card industry with 184.7 million consumers now having access to a credit card. There are 457.6 million credit cards in the U.S. – up nearly 25 million from one year ago. Following seven consecutive quarters of origination growth, Q4 2019 was another record-setting quarter for originations with 18.9 million new accounts – the second straight quarter of originations over 18 million and a growth rate of 14.9% year-over-year. Average credit card debt per borrower rose to $5,653 while consumer delinquency continued to increase to 1.97% in Q1, which is the highest level since 2011.

Instant Analysis

“Since the World Health Organization declared the COVID-19 outbreak a pandemic in mid-March, the credit card sector has not yet seen the true economic impacts of the virus. At the start of this year the industry was poised for another strong quarter as there was record growth in originations and consumer access to credit. Along with this growth, delinquencies remained relatively stable – in part due to accounts moving into deferment as a result of new COVID-19 legislation. However with rising unemployment and growing consumer debt, we expect lenders to recalibrate their underwriting strategies to mitigate risk.”

  • Paul Siegfried, senior vice president and credit card business leader at TransUnion

Q1 2020 Credit Card Trends

Credit Card Lending Metric

Q1 2020

Q1 2019

Q1 2018

Q1 2017

Number of Credit Cards

457.6 million

432.8 million

416.5 million

405.8 million

 Borrower-Level Delinquency Rate (90+ DPD)

1.97%

1.89%

1.78%

1.69%

Average Debt Per Borrower

$5,653

$5,554

$5,472

$5,332

Prior Quarter Originations*

18.9 million

16.5 million

16.0 million

16.0 million

Average New Account Credit Lines*

$5,128

$5,296

$5,283

$5,262

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Personal Loan Market to Transition out of Prolonged Period of Growth

Q1 2020 IIR Personal Loan Summary

Despite total personal loan balances reaching a high of $162 billion, balance growth in the personal loan industry slowed toward the end of Q1 2020 as the COVID-19 pandemic started to take hold in the U.S. The average new account balance secured by consumers has largely remained stable year-over-year. With the onset of COVID-19, lenders started to pull back late in the quarter and origination growth in the personal loan market hit its slowest rate of growth in 10 straight quarters, increasing 4.7% year-over-year in Q4 2019. Comparatively, originations grew 9.7% year-over-year during the same period in 2018. While delinquencies have largely remained stable over the past few years, the COVID-19 driven crisis will likely trigger an uptick in delinquencies over the next few quarters; however forbearance programs will temper the severity of this impact in the near term.

Instant Analysis

“Prior to the impacts of COVID-19, the personal loan market was well-positioned for another strong quarter. However in response to the pandemic, lenders began to deploy new strategies to stabilize their portfolios. Several lenders instituted stricter underwriting guidelines and pulled back on marketing and prescreen campaigns to limit their exposure during the expected downturn. As a result, we expect originations to start declining following several years of significant growth. Forbearance programs may help keep delinquencies in check for the near-term, but as consumers start rolling off these forbearance programs over the coming months, we will likely start to see delinquencies tick up.”

  • Liz Pagel, senior vice president and consumer lending business leader at TransUnion

Q1 2020 Unsecured Personal Loan Trends

Personal Loan Metric

Q1 2020

Q1 2019

Q1 2018

Q1 2017

Total Balances

$162 billion

$143 billion

$120 billion

$102 billion

 Number of Unsecured Personal Loans

23.4 million

21.4 million

19.2 million

16.9 million

Number of Consumers with Unsecured Personal Loans

20.9 million

19.3 million

17.6 million

15.7 million

Borrower-Level Delinquency Rate (60+ DPD)

3.39%

3.47%

3.51%

3.72%

Average Debt Per Borrower

$9,025

$8,618

$7,986

$7,603

Prior Quarter Originations*

5.2 million

4.9 million

4.6 million

3.7 million

Average Balance of New Unsecured Personal Loans*

$5,619

$5,432

$5,044

$5,132

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Forbearance Programs Take Hold of Mortgage Industry

Q1 2020 IIR Mortgage Loan Summary

Serious delinquency rates declined in Q1 2020 to 1.40%, down four basis points from the same period last year – reversing the delinquency uptick from the past few quarters. According to the TransUnion credit database, 5% of all mortgages are currently in financial hardship, which includes forbearance programs as of April 2020. Mortgage forbearance programs, which started in March, have allowed consumers enrolled in those programs to avoid being labeled as delinquent. This has kept delinquency rates at manageable levels in Q1 and is expected to continue into Q2. Prior to the financial impacts of COVID-19, the mortgage industry experienced significant origination growth, primarily due to refinancing in Q4 2019. Volumes reached its highest level in 10 years with 2.5 million originations, a growth rate of 63% year-over-year and nearly 1 million more originations than the same period last year.

Instant Analysis

“Over the past few years we have seen home prices steadily climb, especially in large MSAs and urban centers. A historically low interest rate environment helped drive exceptionally high origination volumes in these high-priced areas as consumers in more expensive homes have a greater incentive to refinance. COVID-19 will have a major impact on the mortgage markets but expect to see strong refinance volumes continue as interest rates remain low. In a survey conducted by TransUnion, at least 11% of consumers are relying on refinancing as a means to help pay for current bills or loans during COVID-19. We expect impacted consumers to continue to take advantage of mortgage forbearance programs, which will keep mortgage delinquency levels reported to a consumer’s credit file low in the near-term.”

  • Joe Mellman, senior vice president and mortgage business leader at TransUnion

Q1 2020 Mortgage Loan Trends

Mortgage Lending Metric

Q1 2020

Q1 2019

Q1 2018

Q1 2017

Number of Mortgage Loans

53.9 million

53.1 million

53.1 million

52.8 million

 Borrower-Level Delinquency Rate (60+ DPD)

1.40%

1.44%

1.74%

2.07%

Average Debt Per Borrower

$213,994

$208,057

$202,470

$196,772

Prior Quarter Originations*

2.5 million

1.5 million

1.8 million

2.1 million

Prior Quarter Average Balance

of New Mortgage Loans*

$268,908

$224,100

$229,538

$235,361

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Following Recent Growth, Auto Industry Expected to Face Challenges

Q1 2020 IIR Auto Loan Summary

Delinquencies remained stable in Q1 2020 at 1.37% 60+ DPD, a slight uptick over the same period last year and within a delinquency variation of 10 basis points for 11 straight quarters. The average new account balance continued to grow and reached an average of $22,764 per consumer ­­– a 2.9% year-over-year increase. This was largely due to consumers moving toward larger and more expensive vehicles such as trucks and SUVs. While the average amount financed continued to rise, the average monthly payment grew at a slower rate due to lengthening loan terms and a recent decline in APR. In fact, APRs experienced their first year-over-year decline in Q4 2019 after 10 consecutive quarters of growth. Despite concerns around auto affordability, originations grew 3.1% year-over-year in the fourth quarter, compared to 1.7% year-over-year in Q4 2018.

Instant Analysis

“Last quarter the auto market exhibited strong year-over-year origination growth and steady delinquencies, highlighting the underlying health of the market pre-COVID-19. In the current environment, external pressures such as high unemployment rates and low consumer confidence will exacerbate affordability challenges and impact future growth in the auto finance market. We anticipate the auto market will continue to face challenges in the wake of COVID-19 as dealers will be forced to transition away from brick and mortar operations. However, we can expect digital innovation to help transform the space with an increasing number of consumers looking to such channels to initiate and complete the car buying process.”

  • Satyan Merchant, senior vice president and automotive business leader at TransUnion

Q1 2020 Auto Loan Trends

Auto Lending Metric

Q1 2020

Q1 2019

Q1 2018

Q1 2017

Number of Auto Loans

83.8 million

82.2 million

79.7 million

76.4 million

 Borrower-Level Delinquency Rate (60+ DPD)

1.37%

1.31%

1.32%

1.30%

Average Debt Per Borrower

$19,302

$18,845

$18,581

$18,386

Prior Quarter Originations*

6.9 million

6.7 million

6.6 million

6.7 million

Average Balance

of New Auto Loans*

$22,764

$22,128

$21,678

$21,071

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

For more information about TransUnion’s Q1 2020 Industry Insights Report, please register for this quarter's webinar.

About TransUnion (NYSE: TRU)

TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing a comprehensive picture of each person so they can be reliably and safely represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good.®

A leading presence in more than 30 countries across five continents, TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people.

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