By Natalie DeCoste
The Consumer Financial Protection Bureau (CFPB) has released a new issue brief on consumer loans, showing that loans had mostly returned to pre-pandemic levels by May 2021.
The new 14-page issue brief, entitled “The Recovery of Credit Applications to PrePandemic Levels,” was released by the CFPB on July 27. The report’s goal was to examine the recovery of the consumer credit market following the disruption of the pandemic.
The onset of the coronavirus pandemic brought about a substantial drop in credit applications compared to the usual pre-pandemic year. Now, the agency reported that consumer applications for auto loans, new mortgages, and revolving credit cards had mostly returned to pre-pandemic levels by May 2021.
The road to recovery for consumers has not been the same across the board. According to the agency, prime and near-prime consumers are driving the credit recovery while applications remain down from borrowers who are subprime and deep subprime. For the subprime and deep subprime consumers, applications remain down for all types of credit. For borrowers with superprime credit scores, applications are down for all types of credit but mortgages.
“Despite the overall trend towards a recovery, we find that consumers with deep subprime and subprime scores still have not recovered to their pre-pandemic levels, likely in part due to a tightening of credit for these consumers,” read the report.
“While consumer credit applications have generally recovered to pre-pandemic levels in the aggregate, we see important differences across consumers. Both borrowers with superprime and subprime credit scores are still not applying for credit as much as they were pre-pandemic. We will continue to keep a close watch on the marketplace as the economic recovery continues, to help ensure all consumers have access to financial products and services that are fair, transparent, and competitive,” said Acting CFPB Director David Uejio.
Not only have different consumers experienced different rates of recovery, but so have different industries. The auto industry experienced a steep drop in March 2020, recovered most of its initial drop by May 2020 to stay sluggish throughout fall 2020, and return to its pre-pandemic trend by the first month of 2021.
According to the CFPB, new mortgage credit inquiries saw a smaller drop in March 2020 compared to other types of inquiries and then surged. Since then, inquiries for mortgages have exceeded their usual, seasonally adjusted volume by 10 to 30%. These numbers reflect the unusually high activity in the mortgage market throughout the pandemic.
Unlike auto loans and mortgages, revolving credit card inquiries did not recover much after March 2020. Credit card inquiries were 46% below their early March level by the week ending June 5 compared to 6% above as in the pre-pandemic years. Credit card inquiries remained below pre-pandemic levels throughout the fall and had a diminished holiday boost compared to normal.
“Finally, in March 2021, the level of credit card inquiries reached back to its usual levels. They have stayed at these usual levels between March and May 2021, indicating that the recovery was unlikely to be only a response to the March stimulus payments,” said the report.
Other key findings in the report included the variation across states for auto loans and new mortgage applications. Credit applications for those two categories experienced far more geographic variation than credit card inquiries did. While credit card inquiries only a 12.3% difference between the greatest and smallest decline by state, auto loans had some states experience increased inquires, and others experience decreased inquiries.
