The pandemic threw a wrench into typical economic dynamics when it hit the U.S. in March of 2020. And as the health crisis quickly turned into an economic storm, government and corporations stepped in to support consumers and avert a depression. Nowhere was that more apparent than in consumer finance metrics.
Companies offered forbearance agreements to customers who lost their jobs, and the government sent out stimulus checks and child tax credits and paused payments on federal student loans. Those consumers who kept their jobs and had nowhere to go spent the unexpected cash on stuff and on paying down debt. As a result, consumer finance credit metrics fell to their lowest in years, and household savings increased.
With the focus on month-to-month credit metrics, the trends can get lost. Compiling publicly disclosed data from three big credit card issuers — American Express (NYSE:AXP), Capital One (NYSE:COF), and Discover (NYSE:DFS) — over the past three years helps to make the trends clearer. And looking at delinquency and net charge-off rates, the message is: The pandemic’s effects on credit are all but over.
The resumption of federal student loan payments is the most obvious next shoe to drop. Those are set to restart in September, but the Biden administration has set a grace period that seeks to maintain borrowers’ credit ratings even if they initially fall behind on their loan payments. In addition, it’s also pursuing another path for student loan forgiveness. However, that route will take time, meaning payments will resume before the bulk of proposed student loan forgiveness take effect.
The data also highlight the difference in the companies’ client bases. The numbers from American Express (AXP), known for catering to higher credit score borrowers, show that its cardmembers are in better shape than early 2020. Both the 30-day+ delinquency rate and net charge-offs remain well below its Q1 2020 levels as seen in the chart below. Meanwhile, metrics at Capital One Financial (COF) and Discover Financial (DFS) have essentially climbed back to prepandemic levels.