The Federal Reserve Bank of New York today released a report on the effects COVID-19 has had on low-income Americans’ ability to access credit and pay down debt.
The report, “State of Low-Income America: Credit Access & Debt Payment,” uses data from the New York Fed’s Consumer Credit Panel, which is based on Equifax credit data. The data is also the source for the Bank’s national Quarterly Report on Household Debt and Credit. This data is complemented with income information from the U.S. Census Bureau’s American Community Survey.
Lower income communities and communities of color have been disproportionately affected by illness and death due to the pandemic and by job loss in the resulting recession. The CARES Act tried to support consumers through large fiscal transfers to households such as stimulus payments and enhanced unemployment insurance; moratoria on mortgage and student loan debt repayments; and a temporary pause of evictions of some renters. However, not all consumers have been covered by these debt relief programs; renters are particularly at risk, as direct fiscal transfers such as stimulus payments and enhanced unemployment insurance end.
Some key takeaways from the report include:
- Borrowers in low-income communities generally have fewer credit products – mortgages, credit cards, auto loans and student loans – than higher income communities. However, for most credit products, the delinquency rate for lower income borrowers is nearly twice as high as the rate for higher income borrowers.
- Higher delinquency rates in low- to moderate-income areas suggest that, before pandemic-related credit moratoria were enacted, borrowers were more likely to struggle to keep current on their debt payments. The decline in delinquency rates since the onset of the pandemic indicates that the moratoria enacted, both through the CARES Act and voluntarily by lenders, provided relief for struggling borrowers.
- Renters may not be as well-positioned as low-income homeowners to withstand income shocks. While homeowners may apply for mortgage repayment deferment, renters may only defer payments on a case-by-case basis. Breaking down delinquency rates by rent status is important for low-income areas, since over two-thirds of households rent and less than one in five borrowers have a mortgage.