Before the COVID-19 pandemic struck, the Consumer Financial Protection Bureau’s Making Ends Meet survey revealed a considerable number of consumers were in a precarious financial position. As of June 2019, 40% of consumers reported struggling with bills or expenses in the prior year, and half stated they could only sustain their expenses for two months or less without their primary income source. The pandemic exacerbated these challenges, leaving many unemployed or facing new financial burdens, often resorting to credit card borrowing to manage.
This survey, unique for its integration of credit bureau data with survey responses, allows an analysis of credit card usage alongside self-reported financial behaviors. Our investigation sought to understand if those financially vulnerable prior to the pandemic increased their reliance on credit card debt as a coping mechanism.
Contrary to expectations, credit card debt declined across the board, even among those facing financial difficulties pre-pandemic. An August report by the Bureau highlighted a significant reduction in average credit card debt during the pandemic’s early stages, a trend consistent among financially vulnerable consumers. This decline may reflect reduced consumer spending and the effectiveness of federal and state financial aid measures, including unemployment benefits and stimulus payments, despite their expiration in July and impending end by the year’s close.
Deep Dive into the Data: The Bureau’s Making Ends Meet survey, conducted in May 2019, offers a comprehensive look at consumers’ financial resilience. With a sample drawn from the Bureau’s Consumer Credit Panel, the survey provides a detailed picture of credit card and other account information. Here, we focus on credit card debt trends.
Credit Card Debt Dynamics: From 2012 to 2019, over 2.8 million consumers had commercial or business credit information on their consumer credit reports each quarter. Business credit cards were most frequently reported, followed by business loans and commercial installment loans. Despite the volume, this represents a small portion of all commercial loans, with at least 89% of banks not reporting to consumer credit bureaus. The selective reporting by some institutions often excludes positive account information, highlighting only delinquent accounts, which can negatively impact business owners’ consumer credit.
The proposed rule aims to introduce safeguards against the risks of automated valuation models, requiring institutions to enhance valuation estimate reliability and prevent data manipulation. This is part of the CFPB’s broader initiative to ensure AI technologies comply with existing laws, avoiding discriminatory outcomes.
This analysis underscores the complex relationship between commercial and consumer credit reporting, with implications for business owners’ financial health and credit accessibility. It serves as a foundation for further exploration into how commercial credit reporting practices have evolved, particularly in light of the COVID-19 pandemic.
The full study, “Commercial Credit on Consumer Credit Reports,” utilizing data from the Bureau’s Consumer Credit Panel, continues the Consumer Credit Trends series’ exploration of evolving consumer credit market issues.
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