With the final signature on the new COVID-19 relief and stimulus package on 12/27/20, a collective sigh of relief, however muted, was felt:
The estimated 12 million people in two key pandemic unemployment programs, who were facing their last payment this weekend, will now receive benefits for another 11 weeks. Plus, all those collecting jobless payments will receive a $300 weekly federal boost through mid-March.
The relief package also extends eviction protection to January 31 and provides $25 billion in rental assistance for those who lost their sources of income during the pandemic. An estimated 9.2 million renters who have lost employment income during the pandemic are behind on rent, according to the Center on Budget and Policy Priorities.
The caveats: Because Trump did not sign the bill on Saturday, those enrolled in the two unemployment programs will likely not receive a payment for the final week of the year. Their payments could also be delayed several weeks while state agencies reprogram their computers.
The temporary nature of this relief package cannot be ignored. By all indications, the course of the COVID-19 pandemic has a long way to run, in spite of the new vaccine rollouts and perhaps the management approach of a new administration. Economic disruption is likely to run through a majority of 2021, with broad recovery perhaps not until 2022. Further relief packages will doubtless be warranted.
As the unfolding sequence of relief packages incrementally extends support to unemployed households, a similar pattern is unfolding in consumer lending, and credit cards specifically. As Brian Riley, Director of Mercator’s Credit Advisory Service argues in a recent Viewpoint to service members:
“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.”
Current forbearance guidelines followed by credit card issuers are likely to continue well into 2021, as payment holidays to economically distressed cardholders are extended to accommodate the course of the pandemic. There has been some resolution of credit card hardship cases since the initial economic shock in the spring of 2020, but the incidence of these cases has stabilized at a still elevated level.
Relief packages and account forbearance policies have been critical to keeping distressed households afloat. But as the pandemic forces policymakers to extend relief, credit card issuers will need to develop plans for handling the remaining, long-delayed write-offs that will inevitably come.
Overview by Ken Paterson, VP, Special Projects and Director, Customer Interaction at Mercator Advisory Group