Consumer Credit Activity Continues to Rise from Pandemic Lows; Auto Loan Subprime Performance Lags NYSE:TRUFebruary 18, 2021
CHICAGO, Feb. 18, 2021 (GLOBE NEWSWIRE) — Consumer credit activity picked up in the final quarter of 2020 as balances increased across most credit products and originations activity rose from the lows observed during the early stages of the COVID-19 pandemic. TransUnion’s (NYSE: TRU) newly released Q4 2020 Industry Insights Report also found subprime borrowers have followed the overall market trend, though this group’s activity has decelerated in the auto lending industry.
“On the surface, the consumer credit market is performing quite well. Serious delinquency levels remain near record lows while balance and origination activity is picking up,” said Matt Komos, vice president of research and consulting at TransUnion. “Additional stimulus and flattening unemployment rates point to a continuation of this trend. However, the performance of those accounts still in accommodation will help shape the true consumer credit picture. With many accounts expected to come out of accommodation between March and May, most notably mortgage accounts, we will soon see the true impact of those programs for both consumers and the credit marketplace.”
While originations, measured one quarter in arrears, rocketed higher in the mortgage industry (rising 67% between Q3 2020 and Q3 2019), this performance has been an outlier in the consumer credit market. Low interest rates and greater housing demand have disproportionately propelled mortgage demand. However, originations activity for credit cards and personal loans have dropped by approximately 30% in the last year. For credit cards and personal loans, the lag in subprime borrowing has mirrored the overall market.
Auto loans have experienced a different phenomenon in which overall originations in Q3 2020 have nearly recovered to Q3 2019 levels, though originations to subprime auto loan borrowers are lagging – down about 21%.
“A tightening in auto lending standards would generally be the primary reason for such a precipitous drop in subprime origination activity. We’ve conducted further analysis that demonstrates that, in this case, it could be a combination of lagging consumer demand and adjustments in lending criteria,” said Satyan Merchant, senior vice president and auto line of business leader at TransUnion. “This revelation points to the outsized economic impacts some subprime borrowers are feeling as a result of COVID-19.”
Originations Activity Coming Off Early 2020 Lows
|Timeframe – Originations
|Q3 2020||7.32 (0.86)||12.28 (2.80)||3.50 (1.24)|
|Q2 2020||6.46 (0.77)||8.59 (1.84)||2.60 (0.89)|
|Q1 2020||6.34 (0.88)||15.52 (2.53)||3.90 (1.19)|
|Q4 2019||6.88 (0.95)||18.90 (3.71)||5.23 (1.91)|
|Q3 2019||7.45 (1.09)||18.65 (3.94)||5.05 (1.79)|
Credit performance of auto loan subprime borrowers also has deteriorated compared to similar…