While the stock market (visit stocktrades) is becoming unstable, many credit card payments have been skipped because millions of Americans have become unemployed as a result of the coronavirus epidemic. Banks and other lenders (who have relied on high consumer spending to make huge profits for years) are preparing to deal with customers.
Credit Card Payments Delayed Due to Coronavirus Outbreak
Credit card payments are one of the fastest places to find financial (short term) security. When a person runs out of funds, this is usually the first loan that goes unpaid. In general, security is not maintained, so if the credit card holder stops paying, the lender is rarely reimbursed.
Many major card issuers, including Capital One, Discover Financial Services, and Synchrony Financial, allow credit cardholders to suspend credit card payments for more than a month. Some have reduced or abandoned arrears and interest expenses, and assigned some customer credit.
With this pause, some borrowers can only float temporarily. Companies and analysts expect payment delays and amortization to increase later this year. Banks and other lenders can only pay unpaid loans until they face payment.
By this year, Discover and Synchrony’s stock market value has evaporated to more than half. This is much less than about a 12% drop in the market, while areas less affected by unemployment (e.g. technology, health care, and consumer necessities) are much worse.
Discover and Synchrony announced this week that payments to thousands of lenders, including many credit card customers, have been delayed. According to Nilson’s report, Capital One, which has about 120 million credit card accounts in the United States, registered 1% of valid card accounts in the extension. These three banks can measure the financial condition of some US consumers. Discover and Synchrony are generally not sold to high-yielding customers, Capital One has many customers and credit scores are below the perfect level.
Banks hope that delayed payments will take time to recover the economy and bring consumers back. However, for those who do not know when to resume work, this may not be enough. Even before the epidemic, many Americans were overwhelmed and used to record credit cards and other debt to keep pace with the increasing costs of college, healthcare, housing, and other costs.
Discover, Capital One, American Express Co., JP Morgan Chase & Co. And other card issuers have raised billions of dollars in additional funds to prepare for potentially large credit losses. “We’re clearly getting worse,” said Roger Hochschild, CEO of Discover Discovery. “It’s very fast and miserable.” Some lenders have reduced creditworthiness for new applicants or existing customers.
Banks like Citigroup Inc., Discover, and Synchrony have closed credit cards that haven’t been used for a while or have reduced spending limits. The company said it has taken steps to reduce risk before pandemics. However, due to these measures, some borrowers can only get loans when they need it most. However, for card issuers, loss of payment is not the only problem.
Card spending for travel and other categories is decreasing. This means that many of the fees charged by banks when making payments by card do not generate much income. And since people at home do not shop, many people cut their credit card costs. This is a problem for publishers specializing in business cards (including sync and affiliate data systems).
Brian Riley, Chief Credit Consultant of the Mercator Advisory Group, said: “Until everything is settled, the credit card’s profitability and risk will be greatly reduced.”