TransUnion: Majority of Consumers in Accommodation Programs Continue to Make Payments
Enrollment in financial hardship programs grew significantly as a result of the COVID-19 pandemic – to 7% of all accounts for credit products such as auto loans and mortgages. However, a new TransUnion study reported the majority of consumers continued to make payments on their accounts, even when in an accommodation program.
The study found seven in 10 non-prime consumers and eight in 10 prime and above consumers made payments on hardship accounts while they were enrolled in such programs. Additionally, more than 40% of accounts in these programs exited within the first three months of entering.
“Traditionally, enrollment in a financial hardship program signified heightened consumer risk,” said Jason Laky, executive vice president of financial services with TransUnion. “In the era of COVID-19, however, the consumer makeup of those accessing hardship programs has been much more diverse in terms of credit profiles. As situations have stabilized, we’ve found that consumers who exhibited key credit behaviors within the first three months of accessing an accommodation program performed well over the long-term.”
The study said the total percentage of accounts in “financial hardship” status showed a considerable increase from March 2020 to May 2020 in the early months of the pandemic. However, TransUnion’s May 2021 Consumer Credit Snapshot showed accounts in financial hardship status have dropped significantly compared to one year ago.
TransUnion studied early consumer credit behaviors upon hardship entry to determine whether these behaviors were predictive of better future credit risk performance. The time consumers stayed enrolled in a hardship program was a key signifier of risk level.
Consumers that were deemed “early exiters” (those who exited on all of their hardship accounts by month three) were lower risk than those who were enrolled in the programs for a longer period. Those who exited early were also less likely to experience continued struggles and leverage financial accommodations again. The study said 80% of these early exiters stayed out of hardship programs nine months later. This trend was consistent across all risk tiers, but prime and above hardship consumers performed exceptionally well and showed a significantly lower delinquency rate if they exited the hardship program early – especially compared to non-prime early exiters where the future performance difference was less pronounced.
“Lenders, banks and various financial institutions across the financial services landscape extended accommodations to consumers to help them withstand the challenges brought on by the pandemic,” said Matt Komos, vice president of research and consulting with TransUnion. “The consumers who enrolled in hardship programs and exited early or continued to make payments on accounts overwhelmingly used the programs for their intended purpose. Not only were these consumers much less likely to go delinquent, they were able to get a leg up during a difficult situation.”