Q&A: D.C. Power Shift, What’s Next?
A new administration in 2021 brings many changes. For our February 4 Market Pulse webinar, our panel of experts discussed the potential impact of the new administration on businesses and consumers. Participants followed up with audience members’ questions about credit bureaus, stimulus checks, student debt and more.
This month’s presenters included: Amy Crews Cutts, President and Chief Economist at AC Cutts & Associates; Stephanie Gunselman, Senior Policy Counsel at Equifax; Jennifer Cox, Risk Solutions and Consulting Leader at Equifax; and Tom Aliff, Senior Vice President of Data Analytics and a Consulting Leader at Equifax. Crew Cutts, Gunselman and Aliff answer those critical questions below.
Jump ahead to a specific topic:
Are credit bureaus, like Equifax, taking the noted disparities into consideration during credit scoring decisioning?
Amy Crew Cutts: Credit bureaus do not have demographic information in credit files or other sources. Even if such corrections would be allowable under FCRA and other laws, there would be no way to do so.
Is there any good source for updates on proposed bills that might affect the credit reporting & consumer lending sectors? Where can we find information on these issues?
Stephanie Gunselman: There are some good blogs out there. The Consumer Finance Monitor blog is a good one. CDIA, our industry association, also updates. Keep your eyes focused for some of those blogs in the industry, and look to us, as well. We’ll continue to provide updates on these issues.
With accommodations, it was expected that credit scores would improve in general during the pandemic period. Now, can the credit score data be broken down by quarter to better identify the change in patterns and migration among the various consumer risk segments. Also, what are the expected changes/migration in 2021?
Tom Aliff: We have been actively monitoring our models monthly and will share more trends on this in the future. We recommend monthly analyses.
With the extra stimulus, what do you think the impacts will be? Will we see increased spend, continual declines in balances and delinquency or something else?
Amy Crews Cutts: If the Biden plan goes through as it’s been proposed with the extra $1,400 on top of the $600 that just went out, I do think we’ll see what we saw earlier in last April and May where we saw a little boost of spending, but importantly, pay down of credit. I think that will go a long way to helping some of these families catch up on some of the debt problems that they have. It’s not going to fix the renter problem. The rental assistance is a big part. In many cases, families are still struggling to get their landlords to help them apply for that, but I do think we’re going to see a lot of what we saw similar to last April with pay down of debt and a little bit of boost of consumption. However, the main point of this is not the consumption piece, it is the floor on financing.
What is the right timing of delivering stimulus to Americans? Should it coincide with higher rates of vaccine/immunity? Should a stimulus be delivered this summer to really impact the economy?
Amy Crew Cutts: In my opinion, the right timing of delivering stimulus to Americans should have been yesterday. The money given to struggling households now will prevent financial disaster so that as the economy opens more normally, they will be in a position to take full advantage of that time.
Do you feel the student debt forgiveness of possibly $40,000 is a reality?
Stephanie Gunselman: Congresswoman Ayanna Pressley (D-MA) has led a resolution in Congress calling on the forgiveness of $50,000 in student loan debt. I think there is a real chance that something is done to provide relief for student borrowers. The amount is unclear, but some forgiveness is a possibility.
Could you repeat the student loan executive order comments?
Stephanie Gunselman: President Biden urged the Department of Education to continue the CARES Act provisions suspending loan payments and pausing collections on defaulted federal student loans through September 30, 2021. The loans have also held 0% interest.
We see bankruptcy filings are down overall on Amy’s presentation. It seems there will be segments of the population, like those in accommodations, that may have higher bankruptcy risk. How can we best assess that?
Amy Crew Cutts: I do think that there will be some elevated risks, especially as some of the mortgage forbearances come offline. The way it was said to me through some friends who do consumer credit counseling is not so much the debt itself, because that will be restructured and most of those payments will be tacked on to the end when the loan terminates, but that people who maybe had gotten used to not making a $2,000 a month payment on their mortgage through the forbearance now will have to get used to paying that $2,000 again, as those payments resume. I don’t know if that will lead to bankruptcy per se, but it certainly will lead to a little more financial distress, at least for a short period. I think that this is now incumbent on us. We’ve never been in this situation before. Every recession is different in its own and unique way. At the same time, lending practices, the knowledge we have and the data-driven insights we have, have evolved tremendously over the last 20 years. My advice is simply to look at all of those tools that are available, things that we’ve learned about, for example, consumer resilience scores being able to identify additional gradations within consumer files, and alternative forms of data. There’s some great stuff that’s coming online about banking information directly brought into the application, as well as the work number and similar things. All of those pieces of information, the amount of data that we can do that doesn’t rely on consumers to bring it to the table, I think creates an enhanced picture and will help figure out those diamonds in the rough.
There seems to be so many moving factors here, and it’s hard to figure out the right strategy. Are there any relevant scores that you think are most useful in this space that may be a good place to start?
Tom Aliff: We did a little review on this on our last webinar series, but the things that we have found to be valuable are predictors that can help assess bankruptcy status like Bankruptcy Navigator. I think it’s really important to know not just scores, but attributes that may be available or more predictive as well. We have a series of attributes that can help, such as the change in utilization, the length and history of that file, how they are performing over time. In addition to that is always ensuring that you have a good foothold on the employment and income status of the population base. We’d be happy to help sort that out because I don’t think all portfolios are the same. We’re seeing different impacts across portfolio type, as well as the mix of diversification that any business has. So, we would love to help work that out with you.
What do you think the regulators’ policy position(s) are or may be with respect to the use of alternative data and scoring?
Stephanie Gunselman: Policy makers are looking at ways to bring more people into the financial system. I think they will closely examine how different types of data are used and the impact of that data on specific populations. I think we will see more support for the use of alternative data, coupled with consumer protections.
What are the score cut-offs for deep subprime, subprime and near prime?
Tom Aliff: deep subprime: <580
near prime: 620-660
super prime: 720+
Watch the February Market Pulse webinar for more economic predictions and consumer credit insights.
Access additional related insights and register for upcoming webinars on our Market Pulse web page.
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