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Credit Unions and Declining Delinquency Rates

With COVID-19 driving a steep rise in U.S. unemployment throughout the spring and summer, coupled with pay cuts occurring across the country, the expectation was that delinquencies would increase. However, just the opposite has occurred: Delinquency rates have actually been declining since April.

How is that possible?

Data scientists at PSCU
have been closely tracking the impacts of the pandemic on credit card
delinquencies, and the numbers show that credit unions were extremely accommodating
to members during the height of the pandemic. In fact, there was a spike in
members with balances who did not make a credit card payment for two
consecutive cycles in May and June and were not marked delinquent by the credit
union.

By offering deferment accommodations to help members through financial difficulties, credit unions potentially stopped or slowed the risk of charge-offs. If not for these accommodations offered by credit unions to their members, delinquency rates would have likely been much higher. Instead, they continue to remain at a four-year low. The 30+ days delinquent balance rate throughout September was 24% lower compared to September 2019.

Proactive measures
by credit unions and other financial institutions provided cardholders substantial
near-term financial relief. Most of those arrangements have now lapsed, but
delinquency rates remain steady. PSCU’s Advisors Plus Consulting experts took a
deeper dive into the data to identify other factors 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 a
    contributing factor. 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.
  • According to the Federal Reserve, an
    average family of four received $3,400 from the economic stimulus checks
    distributed over the summer. Thirty-six percent of that was deposited into
    savings, while 35% went to debt reduction.
  • Other assistance programs from
    federal and state levels have filled some of the gaps created when
    enhanced unemployment benefits from the federal government lapsed.
  • Moratoriums on renter evictions and
    subsequent unpaid rent dollars could have been used to make debt payments.
  • According to data analyzed by higher education expert
    Mark Kantrowitz, less than 11% of Americans with federal student loans are
    repaying them during the pandemic. 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.

Credit unions
should keep a pulse on members that took advantage of accommodations offered during
the height of the pandemic and continue to educate them on additional resources
and assistance available. Leveraging predictive analytics tools, such as PSCU’s
Predictive Analytics solution, can help credit unions identify members experiencing
financial hardship and develop strategies to assist.

Ivana Spadijer

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

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