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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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