Analytics

PSCU Data Shows Credit Unions Were Accommodating During Height of COVID-19, Potentially Stopping or Slowing Down Risk for Charge-offs

By: Ivana Spadijer, Data Science and Insights Program Manager, PSCU

PSCU’s data scientists have been closely tracking the impacts of the COVID-19 pandemic on credit card delinquencies. With the sharp rise in U.S. unemployment throughout the spring and summer, along with pay cuts occurring across the country, the industry’s expectation was that delinquencies would be increasing. However, the opposite has occurred; delinquency rates have actually been declining since April. How can this be?

Credit unions were extremely accommodating to members during the height of the pandemic. The graph below shows a spike in members with balances who did not make a credit card payment for two consecutive cycles and were not marked delinquent by the credit union. By offering deferment accommodations to help members through financial difficulties, credit unions have potentially stopped or slowed down the risk of charge-offs.

line graph of members who missed two consecutive payments

Delinquency rates continue to remain at a four-year low. The 30+ days delinquent balance rate in September was 1.52% – that’s 24% lower compared to September 2019.

line graph of percentage of 30 plus days of delinquency balance
line graph of percentage of 60 plus days of delinquency balance

If not for the deferment accommodations offered by credit unions to their members, PSCU predicts the delinquency rates would have been much higher. The graph below shows PSCU’s actual delinquency rate as compared to the predicted rate range.

line graph showing PSCU’s actual delinquency rate

Other Factors Keeping Delinquency Rates Steady

While proactive measures by credit unions and other financial institutions have provided cardholders substantial near-term financial relief, those arrangements, for the most part, have lapsed. In looking at the bigger picture, PSCU’s Advisors Plus Consulting experts have identified other phenomena that have helped keep delinquency rates low:

  • U.S. households are spending less and saving more. Lower consumer confidence often leads to cardholders reducing their spending, making larger payments toward debt and reducing their debt overall. At the same time, the U.S. personal savings rate has increased from 7% to a peak of 34% in April and is still in the 12-14% range today.
  • Record-low interest rates are helping. Mortgage refinancing to reduce overall monthly outlay can allow members to tackle credit card debt and other bills. Consolidation loans are also available at favorable terms.
  • With the economic stimulus checks given over the summer, the Federal Reserve reports that an average family of four received $3,400 and 36.4% of that was deposited into savings, while 34.5% went to debt reduction.
  • While the enhanced unemployment benefits from the federal government have lapsed, other assistance programs from federal and state levels have filled some of that gap.
  • Moratoriums on renter evictions and subsequent unpaid rent dollars could have been used to make debt payments.
  • Less than 11% of Americans with federal student loans are repaying them during the pandemic, according to data analyzed by higher education expert Mark Kantrowitz. That means only about 4.6 million out of 42 million borrowers are continuing to pay down their debt. The average monthly payment is around $400.

How Can Credit Unions Leverage This Analysis?

Credit unions should keep a pulse on members offered accommodations during the height of the pandemic – and continue to educate them on the resources available while experiencing financial hardship. Leveraging predictive analytics tools, such as PSCU’s Predictive Analytics solution, can also help credit unions recognize members undergoing financial hardship and develop overall goals and strategies for growth.

Ivana Spadijer is a Data Science and Insights program manager at PSCU. In this role, she analyzes data to extrapolate meaningful and actionable insights for credit unions in the rapidly changing payments market. Ivana has spent 15 years in the payments industry, holding various roles in Data Science and Analytics as well as Fraud and Risk Prevention. She joined PSCU in 2016 to establish a Product Management team with a focus on Fraud and Risk and in 2019 transitioned into a new role as the Data Science and Insights Program Manager.