August 5, 2021

Auto loan forbearance levels off in June, TransUnion says

Automotive loans in forbearance stayed relatively steady in June compared with record-setting growth in April and May, credit bureau TransUnion said last week. Flattening forbearance figures could be a subtle sign of improvement, but it likely represents a shuffling of impacted consumers.

Auto accounts in financial hardship — defined by factors such as a deferred payment, forbearance program, frozen account or frozen past-due payment — grew from 0.6 percent in March to 3.5 percent in April as the coronavirus outbreak took its toll on the economy. The figure doubled in May to 7 percent and grew modestly in June to 7.2 percent.

Satyan Merchant, senior vice president and automotive business leader at TransUnion, noted consumers who opted for payment deferral at the onset of the pandemic may have exited forbearance status in June. Some consumers may have requested relief for the first time in late April and May.

Auto lenders may also have granted payment relief extensions for customers assisted in the early days of the pandemic, meaning some of the accounts set to come out of forbearance status in June remain unpaid.

“I would presume that number goes down in July — with the huge caveat that it depends on if there’s an extension of a stimulus program,” Merchant said, adding that further federal intervention would indicate the economy remains fragile. “I’ve heard many auto lenders say it’s on a case-by-case basis if there’s going to be an extension in forbearance status.”

Meanwhile, auto delinquencies remain low, though the auto lending industry is bracing for a potential upswing when the bulk of forbearance periods end. The auto loan delinquency rate dipped to 1.5 percent in June from 1.55 percent in May, but that was higher than the 1.23 percent recorded in June 2019. That indicates federal aid and lenders’ offerings of payment deferrals are still largely keeping consumers above water as unemployment remains high.

Further federal intervention also could prevent auto loans from going delinquent, Merchant said. The Senate is in the process of launching another unemployment stimulus package, though one that offers considerably fewer benefits than the first. The $1 trillion Health, Economic Assistance, Liability Protection and Schools Act offers another $1,200 check to taxpayers and caps emergency unemployment benefits at $200 a week. In September, it would shift to offering impacted Americans 70 percent of the wages they received before the outbreak.

Scattered COVID-19-related closures across the U.S. drove up the unemployment rate, which peaked in April at 14.7 percent. Unemployment levels dropped in May and June, but as coronavirus cases continue to climb, restrictions may be reinstated. TransUnion believes a return to strict shutdowns is unlikely but that additional cases will pose further challenges and hinder economic recovery.

“We still could be in an early phase of the pandemic, and while there is a tick-down in the unemployment rate, it’s not a great number,” Merchant said, adding the 11.1 percent rate for June “does represent a lot of Americans out of work.”

“There’s still a lot of hardship and a lot of people seeking to defer their loans.”