Where the October Coronavirus Credit Default Wave Stands – And What Could be on the Other Side
Updated: Sep 21, 2020
Anyone who has been paying attention to the news over the last month or so has been watching Congress argue about the stimulus package. While Republicans rolled out their plan last month, called the HEALS Act, the Senate still has not been able to agree on the majority of the provisions in either proposed package. President Donald Trump did step in, but only on a couple of issues. As of now, Congress is slated to be out of session until after Labor Day.
Some Relief Through Executive Orders
Since Congress still has not reached a decision on the next stimulus package, President Trump signed two executive orders on August 8.
The first requires the government to continue paying an extra $400 weekly stipend to people living on unemployment. This is only 75% of the $600 weekly stipend that they have been receiving since April – and in some cases, people will not receive the full $400. It all depends on whether states have the budget to contribute or not.
The second order puts student loan payments on pause through the end of the year. The original legislation was slated to come to a halt at the end of September, so this is an extension.
Where the Package Stands Now
There are a few areas of contention left in the stimulus package proposals:
Stimulus checks – This is one of the few places that the two parties are close to an agreement. The checks will likely be $1,200 for individuals, $2,400 for couples, and an extra $500 per dependent with an income cap. However, Congress has to approve this one so Americans are not likely to see stimulus checks for another month or more.
Eviction moratorium – President Trump included a provision for this in his executive order, but it was more of a suggestion that states prevent landlords from evicting tenants if possible. 40 million Americans could face eviction over the course of the coming months.
Additionally, many large corporations began announcing mass layoffs and furloughs at the beginning of the month. Companies include AT&T, Universal, and United Airlines. United Airlines alone is laying off or furloughing 36,000 employees, adding to the 18.1 million Americans who are currently unemployed.
The Potential Second Wave of Defaults
While it seems almost guaranteed that the October default wave is coming, there is likely to be another one on the heels of that one, beginning in January.
Back when the CARES Act was passed, Congress extended the length of time that people could collect unemployment to 39 weeks instead of the 26 that most states offered. This extension will be up at the end of December. If the unemployment rate stays as high as it has been, millions of people are likely to lose their benefits then, triggering a second wave of credit defaults.
What You Can Do for Your Cardmembers
The best thing you can do for your institution and for your cardmembers right now is to prepare. With under two months left until the first wave is likely to hit, now is the ideal time to develop a plan for how your team will deal with the defaults as they roll in.
It is also a perfect opportunity to begin educating your cardmembers on their options for handling a financial crisis. Providing educational materials as well as information about what to do if they find themselves unable to pay credit card debts can prevent bankruptcy for them and charge-offs for you.