As millions of Americans are unable to afford the month’s credit-card payments, big banks are expecting to take a hit, according to The Wall Street Journal.
An early indicator of the economy’s struggle, credit-card payments are unsecured, meaning that lenders don’t hold significant power over borrowers once bills aren’t paid. Now, Capital One, Discover Financial Services, and Synchrony Financial are allowing borrowers to postpone payments for a month or more, lowering late/interest fees, and in certain cases, completely forgiving some payments.
While banks currently exhibit patience, the future will force them to take action. As of now, Discover’s and Synchrony’s value has significantly decreased by more than 50 percent, as opposed to a 12 percent loss in the broader market. Hundreds of thousands of borrowers from Discover and Synchrony have deferred payments, in accordance with the companies’ new policies.
1 percent of Capital One’s 120 million credit-card accounts entered into deferral programs. As most Americans were spread too thin financially before the pandemic, many are worried that just a month of deferral won’t save them from future financial ruin.
Banks are relying on a swift economic bounce back while forgiving certain credit-payments. Yet, as consumers are significantly lowering their spending and travel, banks specializing in credit lines will suffer from lost profits.
Brian Riley, director of credit advisory services at Mercator Advisory Group, said, “For the next two years or so until everything settles, [credit cards] will be much less profitable and more risky.”