When COVID-19 became a nationwide pandemic in 2020, the economy took an immediate, significant hit as businesses everywhere shuttered as a preventive measure. Unemployment claims skyrocketed to never-before-seen levels. There was a palpable fear that consumers’ finances were about to collapse and delinquencies would rise immensely.
In reality, consumers managed to weather the worst of the pandemic without the feared surge in delinquencies. What happened? Three major factors, as we outlined last September:
- Consumers used the COVID-19 stimulus checks to pay down debt
- Lenders offered generous payment deferrals on all types of debt
- People’s credit card balances dropped as spending was curtailed
Fast forward to today. The United States leads all major countries in the world in vaccinations.
The economy is coming back. GDP grew at an annualized rate of 6.4% in the first quarter. The Centers for Disease Control has lifted restrictions on gatherings and masking for those who are vaccinated, allowing more businesses to open. Things are on the upswing. This is the context for looking at collections customers early on in the post-pandemic world.
What is causing post-pandemic delinquencies now?
Prior to the pandemic, we had amassed data about causes for customers’ delinquency. Now that we’re on the other side of the pandemic, we can compare today’s causes to those pre-pandemic ones. Note: We identify these cause by conducting text analysis at scale on customer’s written explanations for their delinquency.
The table below outlines the frequencies of the before and after reasons for customers in the 1-30 DPD bucket:
| Reason | Pre-pandemic | Post-pandemic | Diff | Ratio of post-pandemic to pre-pandemic |
| work | 21% | 31% | 10% | 1.48 |
| health | 7% | 8% | 1% | 1.14 |
| life event | 3% | 3% | 0% | 1.00 |
| emergency | 8% | 7% | -1% | 0.88 |
| uncategorized | 16% | 14% | -2% | 0.88 |
| forgot | 35% | 31% | -4% | 0.89 |
| overspending | 10% | 6% | -4% | 0.60 |
The biggest change we’re seeing currently? How often ‘work’ is cited as the cause of the delinquency. It’s showing up a reason 48% more than it did pre-pandemic. This is what you would expect based on the continuing high level of first-time unemployment claims:
On the flip side, notice the ‘overspending’ reason has the largest relative drop from pre-pandemic level. Again, this is consistent with what one would expect given we’re just emerging from the pandemic. Spending options were limited while things were shut down.
So what will change in the next few months here? Work as a reason for delinquencies should return to its lower pre-pandemic level. People will return to work, albeit slowly. Indeed here’s how the frequency of ‘work’ as the cause of delinquency has looked the past three weeks:
- Three weeks ago: 34.5% frequency
- Two weeks ago: 32.7% frequency
- One week ago: 28.6% frequency
While I’m not expecting a clean monotonic drop in the weeks ahead, the general trend seems logical as our economy reopens after COVID-19. Now what happens after things re-open fully and vaccinations are even more widespread? That’s a topic for an upcoming blog post.
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