Lending Pulls Back, as It Becomes Increasingly Unclear Who Is Creditworthy

Chris Gaetano
Published Date:
Jun 29, 2020
The number of mail-in personal loan credit card offers has dropped steadily over the last few months, with one factor being confusion on the part of lenders, which are unclear about who is and is not a good credit risk in the midst of the global pandemic, said the Wall Street Journal.

Between January and May, personal loan offers have shrunk from 211 million to 84 million, and the number of credit card offers has decreased from 331 million to 74 million. A major factor in this downturn has been the CARES Act, which not only allowed borrowers to defer certain payments, but also prohibited lenders from reporting these deferrals to credit reporting agencies. This means that prospective lenders can't know who received these deferrals, which would have affected their decisions to make an offer one way or another. In the absence of this information, lenders are responding by simply pulling back on credit offers in general, preferring not to gamble on unknown prospects. The situation has also resulted in lenders generally tightening their credit standards.

In the absence of credit data, lenders are seeking out other information that can help them assess creditworthiness, such as using cellphone data to see who has been spending time at unemployment offices, or bank data on cash flow deposits. Credit reporting companies are also in talks with lenders about other sources of data that they could use in lieu of credit scores. This is despite the intention of the aforementioned CARES Act provision that deferrals should not reflect negatively on people's credit scores.

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