For our Q2 2022 Market Pulse Consumer Credit Trends and Economic Outlook webinar, our panel of experts discussed the state of the economy during Q2 and its key elements that could lead to changes in the credit industry. Understanding the current consumer credit trends can help in making informed decisions about your credit risk strategy. 

Rebecca Oakes, Vice-President, of Advanced Analytics at Equifax Canada, presented on the panel this quarter and answered some of the questions we did not have time for during the event, which you can watch here. 

Are credit cards and auto loans early indicators of financial stress?

Rebecca Oakes: Changes in credit card payment behaviour are usually good early warning signs of financial stress as they tend to fall further down the payment hierarchy. For example, a consumer will often prioritize other types of debt, such as their car loan, mortgage payment, or cell phone bill prior to their credit card payment. Globally, we are seeing auto and personal loans and credit cards show an uptick in early delinquency, which means missing monthly payments. It's hard to pinpoint why, but we have a couple of theories. First, pre-pandemic, auto loan missed payments were on the rise at a faster rate than other products. This current increase we are seeing then could just be a faster return to normal in comparison to other products. Second, we believe that credit cards can become more important during a stressful period with high inflation. If consumers are becoming more reliant on credit cards for essential spending such as groceries or energy, then this may temporarily push it up the payment hierarchy and consumers may be choosing to prioritize this debt type. 

Are rising interest rates a big concern for people with variable-rate mortgages?

Rebecca Oakes: Yes and no. The initial good news is that mortgages are now stress-tested. This means that if someone did secure a new variable rate mortgage last year, they have in theory, been tested to ensure they can continue to make payments at a higher interest rate than the initial level agreed. Therefore for variable rate mortgages, especially those opened more recently, there should be some buffer in the short term. The older the mortgage though, potentially the greater risk could exist as the consumer could have accumulated more debt since opening on other products which could impact the original stress test assessment made. Additionally, with high inflation and increasing costs of living, consumers on the margins may begin to experience financial stress. 

Given the take-up rates in the last few quarters, are we missing part of the picture since BNPL doesn’t always report to bureaus? 

Rebecca Oakes: Buy Now Pay Later (BNPL) allows consumers to finance purchases without paying in full immediately. This type of financing sets up consumers with short-term installments they pay over some time. BNPL is gaining traction in Canada and Equifax is looking for ways to evaluate the potential impact on the card market as well as product opportunities. It is correct that certain lenders may have some missing visibility of debt commitments that are not reported to the bureau. This missing information can make decision-making more difficult. However, we continually seek to enhance our coverage of new types of trade or use alternative data sources by having discussions with BNPL companies. 

We want to help Canadians live their financial best. Please contact your Equifax Account Representative to learn more about how understanding our latest global insights and credit trends can help boost business growth. For further questions, you can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.  

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