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Serious delinquencies down, but borrowers face challenges ahead – TransUnion

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DISCLAIMER: As the COVID-19 public health situation evolves, new regulations are being continually issued. This page/story/information may not include the most recent information.

by Ryan Smith 24 Sep 2020

Serious delinquency rates dipped in September for mortgages and other credit products – but potential challenges remain ahead for borrowers, according to a TransUnion report.

Serious delinquency rates improved last month for mortgages, auto loans, personal loans and credit cards.  Since the start of the COVID-19 pandemic in March, mortgage delinquency rates have seen steady month-over-month improvement.

“A significant percentage of consumers utilized financial accommodations to defer or freeze payments during the early stages of the pandemic,” said Matt Komos, vice president of research and consulting for TransUnion. “As the first wave of consumers exit accommodation and a period of excess liquidity, they are returning to their debt obligations and continuing to perform. Consumers who still remain in hardship could be more likely to face income losses and thus have more difficulty exiting these programs than consumers who may have entered into hardship programs as a precautionary measure.”

Consumer delinquency performance
Source: TransUnionTransUnion’s September Monthly Industry Snapshot Report found that the percentage of accounts in “financial hardship” status continued on a downward trajectory in September for mortgages, auto loans, credit cards and personal loans. TransUnion’s financial hardship data includes all accommodations on file at the end of the month and any accounts that were in accommodation prior to the onset of the COVID-19 pandemic.

Across all credit products, the share of accounts in financial hardship fell to pre-May levels in September.

“Accommodation programs provided consumers with payment flexibility and added liquidity during the course of the pandemic,” TransUnion said in the report. “However, as the number of consumers leveraging such programs decreases and government relief funds are not expected to renew, many consumers may find themselves at an inflection point.” 

While serious delinquency rates continued to fall last month, TransUnion observed some negative movement in 30-day delinquency rates – which the credit-rating agency said may serve as an early warning that an account will default. That metric ticked up slightly last month for the two largest payments for consumers – mortgage and auto loans.

“The uptick for both products could signify that consumers are starting to roll forward on deferred payments as they come off hardship programs,” Komos said. “However, it’s still much too early to tell. It could simply be a missed or delayed payment that is late by a few days or weeks, though the consumer’s intention is still to make the payment.”

TranUnion also reported that COVID-19 continues to financially impact consumers. While the percentage of financially impacted consumers fell to 52% – the lowest level since the company’s Financial Hardship Survey began in March – 75% of those impacted remain concerned about their ability to pay their bills and loans. TransUnion found that about a third of impacted consumers are tapping into savings to pay bills and loans.

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Michigan license number:   DM-0016282 Available to the public and licensed in Michigan.

Section 13(1)  When a licensee establishes a debt management plan for a debtor, the licensee may charge and receive an initial fee of $50.00

Section 13(2)  A licensee shall attempt to obtain consent to participate in a debt management plan from at least 51%, in number or dollar amount, of the debtor’s creditors within 90 days after establishing the debt management plan. If the required consent is not actually received by the licensee, the licensee shall provide notice to the debtor of the lack of required consent and the debtor may, at its option, close the account. If the debtor decides to close the account, any unexpended funds shall be returned to the debtor or disbursed as directed by the debtor.

Sec. 14. (1) A contract between a licensee and debtor shall include all of the following:

(a) Each creditor to which payments will be made and the amount owed each creditor. A licensee may rely on records of the debtor and other information available to it to determine the amount owed to a creditor.

(b) The total amount of the licensee’s charges.

(c) The beginning and termination dates of the contract.

(d) The principal amount and approximate interest charges of the debtor’s obligations to be paid under the debt management plan.

(e) The name and address of the licensee and of the debtor.

(f) Any other provisions or disclosures that the director determines are necessary for the protection of the debtor and the proper conduct of business by a licensee.

Sec. 18. (1) In addition to the fee described in section 13(1), a licensee may charge a reasonable fee for providing debt management services under a debt management plan. The fee under this subsection shall not exceed 15% of the amount of the debt to be liquidated during the express term of the plan.

(2) A licensee may offer a debtor the option to purchase credit reports or educational materials and products, and charge a fee to the debtor if the debtor elects to purchase any of those items from the licensee.  Fees charged under this subsection are not subject to the 15% limitation on fees described in subsection (1).

(3) Except for a cancellation described in subsection (4), in the event of cancellation of or default in the performance of the contract by the debtor before its successful completion, a licensee may collect $25.00 in addition to any fees and charges of the licensee previously received by the licensee. This $25.00 fee is not subject to the 15% limitation on fees and charges under subsection (1).

(4) A contract is in effect when it is signed by the licensee and the debtor and the debtor has made a payment of any amount to the licensee. The debtor has the right to cancel the contract until 12 midnight of the third business day after the first day the contract is in effect by delivering written notice of cancellation to the licensee. A cancellation described in this section is not subject to, and a licensee shall not collect, the fee described in subsection (3).

(5) If a debtor fails to make a payment of any amount to a licensee within 60 days after the date a payment is due under a contract, the licensee may, in its discretion, cancel the debt management contract if it determines that the plan is no longer suitable for the debtor, the debtor fails to affirmatively communicate to the licensee the debtor’s desire to continue the plan, or the creditors of the debtor refuse to continue accepting payments under the plan.

(6) A licensee shall not contract for, receive, or charge a debtor an amount greater than authorized by this act. A person that violates this subsection, except as the result of an inadvertent clerical or computer error, shall return to the debtor the amount of the payments received from or on behalf of the debtor and not distributed to creditors, and, as a penalty, an amount equal to the amount overcharged.

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877-999-6442

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