Americans are Having a Tough Time Repaying Pandemic-Era Loans Received with Inflated Credit Scores; U.S. Halts Collection on Some Past-Due COVID Loans, Sparking Federal Probes, and other C-Virus related stories

Americans are having a tough time repaying pandemic-era loans received with inflated credit scores:

With the economy of the United States at a standstill during the Covid-19 pandemic, the efforts to stimulate the economy brought many opportunities to people who may have not had them otherwise.

However, the extension of these opportunities to those who took advantage of the times has had its consequences.

A report by the Financial Times states that borrowers in the United States that took advantage of lending opportunities during the Covid-19 pandemic are falling behind on actually paying back their debt.

At a time when stimulus checks were handed out and loan repayments were frozen to help those affected by the economic shock of Covid-19, many consumers in the States saw that lenders became more willing to provide consumer credit.

According to a report by credit reporting agency TransUnion, the median consumer credit score jumped 20% to a peak of 676 in the first quarter of 2021, allowing many to finally have “good” credit scores. However, their data also showed that those who took out loans and credit from 2021 to early 2023 are having an hard time managing these debts.

“Consumer finance companies used this opportunity to juice up their growth at a time when funding was ample and consumers’ finances had gotten an artificial boost,” Chief economist of Moody’s Analytics Mark Zandi told FT. “Certainly a lot of lower-income households that got caught up in all of this will feel financial pain.”

Moody’s data shows that new credit cards accounts that were opened in the first quarter of 2023 have a 4% delinquency rate, while the same rate in September 2022 was 4.5%. According to the analysts, these levels were the highest for the same point of the year since 2008. —>READ MORE HERE

U.S. halts collection on some past-due COVID loans, sparking federal probes:

The U.S. government has halted some efforts to collect an estimated $62 billion in past-due pandemic loans made to small businesses, concluding that aggressive attempts to recover the money — a portion of which may have been lost to fraud — could cost more than simply writing off the debt.

The Small Business Administration, which manages the program, adopted the policy last April, prompting the agency’s watchdogs to compute the potential losses in a September report that found the practice “risks” violating federal law. The internal directive since then has sparked an outcry on Capitol Hill, where House Republicans on Wednesday opened an investigation and joined their Senate GOP counterparts in demanding documents from the SBA.

At the height of the coronavirus pandemic, Congress created the COVID-19 Economic Injury Disaster Loan program, known as EIDL, which provided low-interest loans to cash-starved companies. From 2020 until it stopped accepting new applications in May 2022, the initiative disbursed roughly $380 billion to help firms stay afloat and maintain their payrolls amid the worst economic crisis since the Great Depression.

Unlike other pandemic-era programs, Congress required EIDL borrowers to pay back their loans, and some quickly appeared to fall behind: By March, the inspector general for the SBA projected that a subset of loans totaling about $62 billion were up to 30 days past due, or delinquent for longer, and that the number would probably grow.

Anticipating a wave of defaults, however, the SBA had already decided that it would not take the most aggressive actions possible to pursue borrowers who received loans worth $100,000 or less. The agency said it planned to send out stern letters demanding payments and threatening penalties, and it aimed to prohibit these borrowers from obtaining federal aid again. But the SBA opted against referring all unpaid and delinquent loans to the Treasury Department, which can garnish wages and initiate other collection activities, according to reports, letters and other materials prepared by SBA and its top watchdog that were later reviewed by The Washington Post.

Explaining its decision, SBA leaders said that the government at the time would be unlikely to recover most of the money anyway. They indicated they had few options because of decisions made under the Trump administration that limited debt collection, making the work to claw back money so costly that it would negate any potential federal savings. —>READ MORE HERE

Follow links below to relevant/related stories and resources:

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