Paying those credit card bills
Benefits amid pandemic helped many keep pace, but programs set to end
NEW YORK — The pandemic hasn’t stopped Americans from keeping up with their credit card payments, thanks in part to government relief programs passed by Congress earlier this year.
For some, however, the ability to keep buying things with plastic and then pay the bill likely depends on whether current negotiations in Washington produce another round of economic aid. Many existing aid measures are set to expire.
The pandemic plunged the U.S. economy into a deep recession, costing millions of Americans their jobs and businesses. As the economy has recovered somewhat, the latest report on the job market shows the pace of hiring has slowed in the face of a wave of new COVID-19 cases.
While the banking industry has not shared industrywide statistics, the major credit card issuers — JPMorgan Chase, Bank of America, Citigroup, Capital One and American Express — have reported relatively stable delinquency rates despite the recession.
But both industry data and analysts have made it clear: The measures the government took earlier this year have worked, and without them, the industry and cardholders would be in deeper trouble.
“The stimulus and unemployment benefits have definitely helped the lower end of (credit card borrowers),” said Sanjay Sakhrani, an analyst at investment bank Keefe, Bruyette & Woods.
As part of the $2 trillion coronavirus aid bill Congress enacted in March, most Americans got a $1,200 stimulus check. While the Census Bureau found that the bulk of Americans used their funds toward household expenses, roughly 1 out of 5 used it to pay down debt. Experts also argue that some household expenses would have ended up on credit cards were it not for stimulus checks and healthy unemployment benefits.
In some ways, what’s going on in the credit card market also reflects the diverging fortunes of those impacted by the pandemic.
Since the Great Recession more than 10 years ago, few mainstream credit card companies have put effort into lending to subprime borrowers or to the poor. Credit card companies are now focusing on middle- to upper-class borrowers, who typically have jobs allowing them to work remotely and are not in businesses that have been shut down due to the virus.
Even so, many middle-class individuals who work in industries affected by the pandemic have gotten financial relief through extended jobless benefits or government and private programs that have allowed borrowers to enter into forbearance or deferred payment programs.
“But those measures are now sunsetting, and (these borrowers) are most likely to be the first to feel pressure and pain,” said Sakhrani.
Congress appears to be making progress toward an agreement on a new relief bill in the $1 trillion range. Additional unemployment benefits are likely, though it’s unclear if Americans will see another round of stimulus checks.
Credit card executives have been bracing for the impact on their customers if there is no new aid.
“(Like our competitors), our customers are also helped by external factors such as the impact of record levels of government stimulus and the broad availability of forbearance programs,” said Jeff Campbell, American Express’ chief financial officer, in October with a call with investors. “As a result, we do remain cautious about the potential for future shocks to the economy.”