Credit Risk

Podcast: What Direction will the Economy Take?

Podcast: What Direction will the Economy Take?

September 23, 2020 | Theresa Freas

New Podcast Examines Latest Economic Trends for Consumer Credit and Small Business

The Market Pulse podcast is a new production from Equifax in partnership with Moody's Analytics. Whether you're in financial, mortgage, auto, utilities or another service industry, our new podcast series helps you leverage the latest economic and credit insights for better business decisions.

In Episode 1: What Direction will the Economy Take?, we discuss the potential for another round of stimulus benefits, the possible shape of the economic recovery and the latest trends for both consumer credit and small business.

Join me as I interview Cris DeRitis, deputy chief economist at Moody's Analytics; Chris Walker, senior director of product management at Equifax; David Fieldhouse, director of credit analytics at Moody's Analytics; and Sarah Briscoe, senior data scientist at Equifax. And for some bonus content from the podcast, continue reading as we discuss the current state of auto and bank card accommodations.


Why the Uptick in Auto Delinquency?

Theresa: Chris, you had mentioned a recent uptick in auto delinquency. Is this the result of people rolling off accommodations and being unable to pick back up on their payments?


Chris Walker: Yes. The guidance [from regulators] is that when a consumer comes off of a possible accommodation, they carry the same account status that they had in the accommodation for one additional reporting period. And after that additional reporting period, the account could advance. So should a consumer come out of accommodation, their lender would report the consumer’s current account status plus the following accounting period as if the account were still in the accommodation. If the consumer did not pay down that debt or pay on time, then they would be allowed to advance to the next delinquency stage or improve; however, that loan is paid accordingly.
So to answer your question, the generalized thought here is that as accounts are rolling off accommodation, we're now seeing the resulting impact on payment status for those accounts. And what we are seeing in the data is that a larger number of auto accounts are now rolling into delinquency status, a larger percentage than we saw prior to the onset of the pandemic in March.

Theresa: Just to confirm, accommodations are lender-specific, correct? Consumers and businesses work directly with their lender to work out a potential accommodation on their account, or to catch up on any missed payments when coming out of an accommodation. Is that right?

Chris Walker: Yes, that's true. It would be based on how that lender enacted the program, which consumers contact them to be a part of a possible accommodation, and then ultimately, how that lender reported that accommodation to credit reporting agencies. And there were many ways that lenders could report accommodations to us. We've identified six possible accommodations that we have followed since the onset of this pandemic. The two that we've seen the most movement in recently have been the disaster flag, which is fairly common, and then the inferred possible combination as well.

Theresa: How is bankcard trending as far as possible accommodations? And what trends are we seeing for card utilization or delinquencies?

Chris Walker: The utilization rates for both bankcard, as well as the private label cards, are remaining very low. Looking back over the last five or six years for bankcard, it's hovering somewhere around 19%. Utilization had continued to decline since the implementation of the CARES Act or since March 3, when we started reporting on this information on a weekly basis. More recently, card utilization has been more stable, holding around 19%. Delinquency rates for bankcard and private label card had been declining as well. However, as of the last two to three weeks’ cycle periods, we've seen a slight up-tick in both bankcard and private label card delinquency. These are trends that we're going to keep an eye on.

Theresa: Are we seeing that the uptick in card delinquency is similar to auto where we have a lot of folks coming off of accommodations at this time?

Chris Walker: Yes. That's a good question, Theresa. We have been watching bankcard accommodations, and there has been a slight decline in possible accommodations this past week. The percentage of balances and percentage of accounts that were under some form of possible accommodation actually fell back to pre-COVID levels. We’re seeing about three and a half percent or so of accounts are under some form of possible accommodation.

The biggest driver here has been with the inferred accommodation type that we spoke of earlier, where we're seeing a balance on the account, but no payment amount. We're capturing that as a form of possible accommodation. And that's what we've seen -- a drop off in inferred accommodations for bankcards. As accounts are coming out of this possible accommodation, many are now running through the normal delinquency cycle. And you're now seeing the effects of that 30 to 45 days later.

Theresa: David, as we shift gears from current data trends and start looking toward the future, what are you seeing for bankcards?


David Fieldhouse: We're seeing that utilization rates will be depressed to a certain extent. When we look at our balanced growth estimates and forecast, a lot of them are driven by retail sales. And retail sales were down for much of the year. On top of that, we saw an incredible amount of savings occur between March and June/July. Looking at that five-month period, you see almost the same amount of savings that you typically would over an entire year. So consumers have padded their household pocketbooks, if you will. And if retail sales only maintain the level of where they were at COVID-19 with the extra savings, it will only allow for a certain level of [card] balance growth.

So ultimately, where do we end up at the end of the year? It's probably at a lower level of utilization than we were pre-COVID. That's because of the savings or dampening the credit card usage, if you will. And then similar to auto, we are forecasting a rise in card delinquencies towards the end of the year. Credit cards seem to be one of the most uncertain outcomes if you will, for delinquencies and defaults. We find them tied very, very closely to the economic environment overall. There's still a great deal of economic uncertainty out there.

And a lot of it is generated from the discussions related to the stimulus. If we don't have a stimulus, we could have a level of defaults that are higher than what we saw during the financial crisis. That's definitely something that's in the realm of possibility. But right now, our baseline forecast assumes that some additional signals will come towards the end of the year. And that should help mitigate some of the defaults that would appear in that sort of a stressful environment. And what we should see is the level of default setting in just below what we saw in the financial crisis.

Theresa: Thank you, David. On the topic of stimulus benefits, let's bring Cris DeRitis back into the conversation. What's on the horizon?


Cris DeRitis: Theresa, certainly there's a lot of uncertainty around the stimulus here today. We expect that Congress will eventually provide some additional stimulus to households, small businesses, and state and local governments. But there is a lot of uncertainty around the timing of this, particularly with the election coming up. So it's essential to really support households, as well as businesses, as we continue to heal the economy. However, in terms of this precise timing, there's quite a bit of uncertainty at this point.

To hear more on these topics, and to learn about small business trends in today’s uncertain economy, we invite you to listen to our new Market Pulse podcast now. Keep informed of the latest insights by subscribing to the podcast today. We’ll publish a new episode on the third Thursday of each month. You might also enjoy our Market Pulse webinar series, providing an even deeper level of insights along with a special topic of focus each month.