Pandemic onset did not cause delinquency spike – CFPB

Consumers didn’t experience significant increases in delinquency or other negative credit outcomes following the onset of the COVID-19 pandemic, according to a new report by the Consumer Financial Protection Bureau.

The report, released Monday, examined the early effects of the pandemic on consumer credit, focusing on mortgages, student and auto loans, and credit card accounts from March to June. It noted that the onset of the pandemic brought with it “immediate and dramatic shocks to consumer and household income” beginning in March.

“Within three months, the unemployment rate was 11.1 percent, and significant cuts in retail spending occurred among households,” the report said. However, stimulus payments and relief programs put in place under the CARES Act cushioned the blow for many.

“Over 33 million U.S. workers claimed [unemployment] benefits at the end of June 2020, many of whom received expanded benefits from an expansion of benefits under the CARES Act,” the report said. “Stimulus payments under the CARES Act also provided income for both unemployed and employed workers that met certain criteria.”

The report found that the rate of new delinquencies on mortgages, student loans, auto loans and credit cards actually fell between March and June, after staying flat or gradually increasing over the prior year. The share of already delinquent accounts that became more delinquent also fell.

However, the report also found sharp increases in payment assistance programs.

“Student loan and first-lien mortgage accounts had the largest increase in assistance in terms of magnitude, but increases in assistance on auto loan and credit card accounts were substantial given that there was effectively zero assistance reported for consumers prior to the COVID-19 pandemic,” the CFPB said. “Assistance appeared to be more concentrated among borrowers residing in areas that were more severely affected by the COVID-19 pandemic and the associated shocks to employment.”

Payment assistance programs were often indicated by a sharp increase in accounts with zero payments reported due despite a positive balance, the CFPB said.

“This was most pronounced for mortgages, where we observe around 6 percent of all outstanding first-lien mortgages reporting zero payment due by June 2020, up from essentially zero in February 2020,” the report said.

Assistance was more likely to be reported for borrowers living in areas with more COVID-19 cases, with majority-Black or Hispanic populations, or with larger changes in unemployment since the onset of the pandemic, the CFPB reported.