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Americans Skip Millions of Loan Payments as Virus Exacts Toll

The Wall Street Journal. logo The Wall Street Journal. 6/18/2020 AnnaMaria Andriotis
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Americans have skipped payments on more than 100 million student loans, auto loans and other forms of debt since the coronavirus hit the U.S., the latest sign of the toll the pandemic is taking on people’s finances.

The number of accounts that enrolled in deferment, forbearance or some other type of relief since March 1 and remain in such a state rose to 106 million at the end of May, triple the number at the end of April, according to credit-reporting firm TransUnion.

The largest increase occurred for student loans, with 79 million accounts in deferment or other relief status, up from 18 million a month earlier. Auto loans in some type of deferment doubled to 7.3 million accounts.  Personal loans in deferment doubled to 1.3 million accounts.

The surge in missed payments suggests that the flood of layoffs related to the coronavirus has left many Americans without the means to keep up with their debts. Many people have used up their stimulus checks, and unemployment benefits in high-cost areas aren’t enough to replace paychecks or to help debt-laden borrowers pay down their bills.

In some cases, the government is instructing companies to let borrowers defer their loans. The stimulus package signed into law in March, for example, allowed most borrowers to stop making monthly payments through Sept. 30 on federal student loans.

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The stimulus package also allowed homeowners hurt by the coronavirus or its economic fallout to ask their mortgage servicers for permission to pause their payments for up to 12 months. If the mortgage is backed by the government, the mortgage servicer is generally supposed to grant the request.

In other types of lending, consumers are actively seeking help. Many credit-card, auto-loan and personal-loan lenders continue to allow consumers to skip or pause payments, in hopes of buying time for the economy to recover and for consumers to get back on track with their payments.

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Capital One Financial Corp., for example, has been working with customers who say they can’t pay their bills. The bank said earlier this month that about 2% of active card accounts were in forbearance at the end of May, up from 1% as of mid-April. Some 13% of its auto-loan accounts were in forbearance, up from 9%.

But lenders will shoulder the unpaid loans for only so long, and many are expecting delinquencies to soar later this year as the recession drags on.

The deferments are also making it difficult for lenders to decide which applicants can get new loans. There isn’t one uniform way of reporting people seeking help with their debts to the credit-reporting firms, and some lenders say they are having a difficult time determining if applicants’ credit scores and credit reports reflect their true levels of risk. Credit scores factor in missed payments such as delinquencies but aren’t supposed to reflect deferments tied to the pandemic.

TransUnion recently began selling new data to lenders to help them determine whether consumers have been affected by the pandemic. In some cases, for example, TransUnion will offer data on which consumers are in deferment and how long they have been in that status.

The data, part of the company’s CreditVision Acute Relief services sold to lenders, can also be used in an anonymous way to help lenders determine whether they need to tighten or loosen their underwriting requirements.


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