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Data for today’s episode is provided by Mercator Advisory Group’s Viewpoint: Credit Card Account Forbearance: Not Forgiveness and Not Forever
Impending Credit Risk for Credit Card Issuers:
- Credit forbearance under the CARES Act froze delinquency aging, but many programs are expiring.
- Forestalling delinquency was an exceptional move, but it masked the credit risk, which has created new downstream risks for credit card issuers.
- Credit quality barometers, like credit bureau reporting, do not have a clear line of sight on customers.
- Rather than natural delinquency aging, risky accounts linger in delinquency buckets.
- If recovery is rapid, the issue may be dismissed. If recovery stalls, write-offs may double or triple.
- For consumers, much of their credit situation depends on whether they were delinquent before or during the CARES Act
Payment holidays helped consumers get through unexpected credit risk during the pandemic, but before long it will be time to pay the piper. Suppressed delinquency volume makes risk appear under control, but the day of reckoning will soon be at hand.
COVID’s sudden grip on cardholders disrupted household budgets worldwide. Countermeasures supported by consumer protection agencies allowed for payment holidays, but sooner or later the industry will need to contend with a disrupted credit cycle. Issuers must be prepared for the upcoming storm.