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The Consumer Credit Industry Shows Signs of Bouncing Back Despite COVID-Related Challenges

TransUnion’s quarterly Industry Insights Report and monthly industry snapshot analysis shed light on consumer credit trends during the pandemic

At the end of the last quarter, one key data point from our Q1 2020 Industry Insights Report loomed large: The percentage of accounts entering “financial hardship” status, which includes factors such as deferred payment, frozen accounts or past due payments, had risen for credit products, such as auto loans, credit cards, mortgages and personal loans.

Fortunately, in Q2, more positive numbers emerged. As revealed in the just-released Q2 2020 Industry Insights Report, the number of accounts in financial hardship status — which appear to have peaked in May and June — dropped in July, the first such decrease since the pandemic struck the US. Additionally, credit performance has continued to hold steady and serious delinquencies (60–90 days past due) showed a month-over-month improvement from June 2020 to July 2020 across most credit products.

“Overall, the consumer credit market has been performing quite well despite the obvious challenges brought on by the COVID-19 pandemic,” said Matt Komos, Vice President of Research and Consulting at TransUnion. “It’s a reassuring sign that delinquency levels have remained relatively low, especially as the percentage of consumers in financial hardship status has started to decline.”

Accounts in Financial Hardship Status Declining

TimeframeAutoCredit CardMortgagePersonal Loans
July 20206.16%2.83%6.15%6.92%
June 20207.20%3.57%6.79%7.03%
May 20207.04%3.73%7.48%6.15%
April 20203.54%3.22%5.00%3.57%
March 20200.64%0.01%0.48%1.56%
July 20190.41%0.01%0.75%0.25%

*TransUnion financial hardship data includes all accomodation on file at month's end, and includes any accounts that were in accomodation prior to the COVID-19 pandemic.

Evaluating the quarter as a whole

To see all the Q2 data relating to the state of personal, auto and mortgage loans, download the Q2 2020 Industry Insights Report, but here are some important highlights.

Consumer credit trends in the auto sector: Q2 2020

During the second quarter, lenders began tightening their lending criteria across all risk tiers in the auto market as performance started to show initial signs of deterioration.

Findings from the study:

  • Consumer level delinquencies (60+ DPD) reached 1.5% in Q2 2020, up 27 basis points (bps) from Q2 2019 and the largest increase from the previous 11 quarters
  • Overall delinquencies saw an uptick, but most lender types, including banks, captives and credit unions have experienced a downward monthly trend in delinquency since the pandemic began
  • Independent auto lenders have been experiencing a monthly increase in 60+ DPD
  • Recent deterioration in performance has been primarily driven by subprime and near prime
  • Overall originations declined -5.8% year-over-year for a total of 6.3 million new loans

Q2 2020 Auto Loan Trends

Auto Lending MetricQ2 2020Q2 2019Q2 2018Q2 2017
Number of Auto Loans83.5 million82.7 million80.9 million77.4 million
Borrower-Level Deliquency Rate (90+DPD)1.50%1.23%1.22%1.23%
Average Debt Per Borrower$19,457$18,974$18,700$18,486
Prior Quarter Originations*6.3 million6.7 million6.8 million6.7 million
Average Balance of New Auto Loans*$22,372$21,418$20,901$20,415

*Note: Originations are viewed on quarter in arrears to account for reporting lag.

Our view: Consumers tend to prioritize auto loan payments even during times of economic distress, so the recent deterioration may be the result of consumers having less cash flow. Continue monitoring delinquency levels — especially as accommodations expire or stimulus benefits run out — to determine future risk mitigation strategies across the portfolio.

Consumer credit trends in the credit card sector: Q2 2020

To address growing market uncertainties, card issuers have tightened credit over the past quarter with total credit lines on new accounts declining -8.3% year-over-year to $78 billion, the first decrease observed since Q1 2018.

Findings from the study:

  • The average credit line issued to new accounts decreased -9% year-over-year to $5,257, with a decline across all risk tiers
  • Consumers continue to pay down card balances, with the average debt per borrower decreasing from $5,645 in Q2 2019 to $5,236 in Q2 2020
  • Payments and an increase of hardship accommodations have resulted in steady performance for the sector, improving to 1.47% (90+ DPD)

Q2 2020 Credit Card Trends

Credit Card Lending MetricQ2 2020Q2 2019Q2 2018Q2 2017
Number of Credit Cards451.5 million437.1 million420.0 million409.8 million
Borrower-Level Deliquency Rate (90+DPD)1.47%1.71%1.53%1.46%
Average Debt Per Borrower$5,236$5,645$5,543$5,422
Prior Quarter Originations*15.5 million15.3 million14.5 million15.0 million
Average New Account Credit Lines*$5,257$5,773$5,649$5,817

*Note: Originations are viewed on quarter in arrears to account for reporting lag.

Our take: The pandemic has driven a significant slowdown in origination activity and a decrease in credit lines as lenders look to reduce risk. Deferral programs and government aid — combined with less spending and larger payments — has allowed consumers to reduce card balances in the near-term and has largely kept delinquencies in check. We anticipate the expiration of those programs will impact performance, however.

Consumer credit trends in personal loan: Q2 2020

In Q2 2020, the personal loan growth of the last several quarters slowed. Total personal loan balances reached $156 billion, a 5.3% year-over-year increase and the slowest rate of growth since Q4 2012, a likely result of COVID-related pullback, particularly in below-prime tiers.

Findings from the study:

  • Personal loan performance has not shown any material deterioration as overall consumer level delinquency (60+ DPD) in Q2 2020 decreased slightly to 3.08%
  • The number of consumers carrying a balance saw a quarterly decrease for the first time since Q1 2017, despite a year-over-year increase
  • Originations in Q1 2020 grew by 3.8% year-over-year, down significantly from the 8.2% growth in Q1 2019, when most of the growth was concentrated in prime and above risk tiers as lenders started tightening underwriting standards in the second half of March

Q2 2020 Unsecured Personal Loan Trends

Personal Loan MetricQ2 2020Q2 2019Q2 2018Q2 2017
Total Balances156 billion148 billion125 billion107 billion
Number of Unsecured Personal Loans22.2 million21.6 million19.5 million17.3 million
Number of Consumers with Unsecured Personal Loans20.0 million19.6 million17.9 million16.1 million
Borrower-Level Deliquency Rate (90+DPD)3.08%3.12%3.21%3.02%
Average Debt Per Borrower$9,102$8,856$8,198$7,781
Prior Quarter Originations*3.9 million3.8 million3.5 million2.8 million
Average Balance of New Unsecured Personal Loans*$6,690$6,790$6,443$6,430

*Note: Originations are viewed on quarter in arrears to account for reporting lag.

Our take: A combination of lenders cracking down, stimulus checks reducing consumer demand and stay-at-home orders decreasing spending has dramatically impacted the market. We expect lenders to cautiously ramp up origination volumes in Q3 with a continued focus on lower risk consumers.

Consumer credit trends in the mortgage sector: Q2 2020

With interest rates hitting their lowest level in three years, mortgage originations spiked in Q1 2020 and reached 2.2 million, 80% higher than the same period last year.

Findings from the study:

  • Of the originations, 51% were purchase originations and the remaining 49% were refinance originations, compared to Q1 2019, where 74% were purchase originations and 26% were refinance originations
  • Of the total refinance volumes this quarter, 61% were Rate and Term refinance and 39% were Cash-Out refinance, compared to last year at the same time when 36% of refinance originations were Rate and Term refinance and 64% were Cash-Out refinance
  • Average new account balances for new originations grew 12% year-over-year

Average new account balances for purchase loans grew 10%, while average new account balances for Rate and Term refinances grew 3% and Cash-Out Refinances grew 15% in Q1 2020

Q2 2020 Mortgage Loan Trends

Mortgage Lending MetricQ2 2020Q2 2019Q2 2018Q2 2017
Number of Mortgage Loans50.5 million49.8 million49.5 million49.6 million
Account-Level Deliquency Rate (90+DPD)0.93%1.07%1.37%2.22%
Prior Quarter Originations*2.2 million1.2 million1.3 million1.4 million
Prior Quarter Average Balance of New Mortgage Loans*$291,418$260,181$249,540$238,981
Borrower-Level Deliquency Rate (90+DPD)0.78%0.91%1.14%1.38%
Average Debt Per Borrower$215,178$209,402$203,887$198,045

*Note: Originations are viewed on quarter in arrears to account for reporting lag.

Our view: In Q1 2020 we observed a higher rate of origination growth for 15- and 20/25-year loans than 30-year loans for purchase mortgages, with 15- and 20/25-year purchase loans growing 52% and 53% year-over-year and 30-year purchase loans growing 21% year-over-year. Low interest rates enabled borrowers to afford higher monthly payments that come with shorter term loans. On average, the spread between the 15-year and 30-year mortgage rates in Q1 2020 was 54 basis points and consumers were smart to take advantage of it.

To receive more insights on consumer credit trends, register for the TransUnion Q2 2020 Industry Insights Report webinar.

Do you have questions? Our team is ready to help.