Credit Cards and COVID: One Year Later
“See you in a few weeks when this madness is over,” was a running refrain as we walked out of our Manhattan office on March 10, 2020. Now two weeks has turned 52, and the company has said it won’t. . force us to return to the office until January 2022 at the earliest.
I am shocked at how long this pandemic has lasted. I am also shocked at how much credit card debt and defaults have declined during this period. It is almost unfathomable that tens of millions of Americans have lost their jobs and yet total credit card debt has fallen 12% from the fourth quarter of 2019 ($ 927 billion) to the fourth quarter of 2020 ($ 819 billion). , according to Federal Reserve Bank of New York. When you are out of work, you have to incur expenses like food, gasoline, and medicine on your home. credit card just to get by, right?
And you might not be able to reimburse the card company, according to conventional wisdom. the cushion rates (credit card bills so late that they are written off by lenders) are usually found to be roughly the same as the unemployment rate. During the Great Recession, for example, the unemployment rate peaked at 10.6% in January 2010. The rate of fluctuated between 10 and 11 percent from mid-2009 to mid-2010.
This time it was not close. The unemployment rate reached 14.7% in April 2020. It remained above 10% for four months and now stands at 6.2% (it was 3.5% in February 2020). Still, expenses fell, counterintuitively, from 3.85% in the second quarter of 2020 to 2.62% at the end of the year.
Huge government stimulus packages are the number one reason credit card issuers have avoided the worst-case scenario to date. The $ 2.2 trillion CARES Law made direct payments of $ 1,200 to most American adults and $ 500 for each child last spring. Another key piece of the legislation was the paycheck protection program, which encouraged companies to keep workers on their payrolls. Unemployment benefits have also been broadened and extended. Then more stimulus arrived in january 2021 ($ 600 for most adults and children). A third round of payments ($ 1,400 for most Americans) is expected to arrive later this month.
Many consumers have spent less and made paying down their debts a priority during the pandemic. And the financial industry’s hardship programs have provided extra help to those in need. The banks are not yet ready to declare that we are out of the woods, but they have started releasing some of the massive loan loss reserves they set aside at the start of the pandemic.
Approvals, credit limits took a hit
In 2020, U.S. consumers opened about 51 million bank-issued credit cards, according to Equifax. That’s about 20% lower than in 2019. The average credit limit was around $ 4,200 (also down about 20% from 2019). While a credit rating of 670 or better would have qualified you for most credit cards in 2019, the threshold was more like 720 last year.
Lenders were understandably worried about the state of the economy. The cuts were particularly marked in the 0% balance transfer space. Issuers sent 42% fewer direct mail ads for these cards in the first three quarters of 2020 compared to the same period in 2019, according to Mintel Comperemedia. In addition to being more selective when it comes to new customer approvals, most banks have also tightened credit limits for existing cardholders to limit their exposure to risk.
Your payment habits have probably changed
The pandemic has led many card companies to take a hard look at “new normal categories” such as groceries, food delivery, take out and streaming services. Some of that is already back to how it was before, although I think some will stay. Turning away from the journey was necessary for some time. Going forward, I expect some card issuers will continue to offer high daily benefits in addition to travel benefits. These could include enhanced cash back programs, meal credits, better rewards on daily purchases, and free memberships for exercise and food delivery services.
Another example of new habits that have formed: e-commerce and contactless payments have both grown by leaps and bounds during the pandemic, and they are expected to continue to grow in the future. Maybe the pandemic made you order groceries online for the first time and you liked it, then you will stick with it. Or maybe you finally signed up for Apple Pay to avoid hitting a potentially germinated payment terminal, and it was so quick and easy that now you’re hooked.
The canceled events were painful
According to Chargebacks911, credit card disputes (chargeback requests) increased by 25% in 2020. In the beginning, travel and events were the main categories as plans were muddled and people didn’t always get their money back. as they hoped. More than half of American adults who spent money on events canceled by the pandemic lost money, according to a Bankrate.com survey from July 2020.
These previous travel and event plans have mostly been resolved in one way or another, and e-commerce has emerged as the number one litigation category, according to Monica Eaton-Cardone, COO of Chargebacks911. My best advice is to start by contacting the merchant you made the purchase from. If you can’t get a refund from them and you still think you’ve been wronged, consider requesting a chargeback.
Backup options may include contacting the Consumer Financial Protection Bureau, the Better Business Bureau, or your state’s attorney general’s office. Arbitration and small claims court are additional legal avenues. It may take some persistence, but if you feel you’ve been treated unfairly, I think you should stick with it and stand up for yourself.
Waiting for better days
There is no doubt that 2020 has been difficult, but we have good reason to believe that the worst is behind us. Vaccinations resume, infection rates drop, and restrictions on travel, events and other businesses begin to ease. There is growing optimism that we may be heading into the second coming of the Roaring Twenties. While this is overwhelmingly positive news, be sure to save some cash now so you don’t blow your budget and incur costly credit card debt in the process.
A question about credit cards? Email me at [email protected] and I would be happy to help.