Pattie Lovett-Reid

Chief Financial Commentator, CTV

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Canadians appear to bracing themselves for more uncertainty due to the COVID-19 pandemic, according to TransUnion's Q2 2020 Insights Report.

Access to credit slowed in the second quarter as new applications for credit cards and lines of credit dropped. This was in part due to a pullback in spending and a desire to reduce outstanding credit balances by some consumers.

The number of consumers seeking credit – determined by the volume of applications – plunged at the start of the Q2, according to TransUnion. Of course this was when the pandemic hit with a vengeance and banking branches had reduced access, tremendous uncertainty around employment was evident, and fear associated with taking on more debt gripped Canadians.

While undoubtedly a challenging period, Canadians seem to have responded in a prudent manner. 

To be fair, the reduction in credit may also have had to do with consumers taking advantage of payment deferrals, which would have reduced the need to borrow more money. Lenders were also more cautious in their practices, while providing support and relief programs early on by freeing up cash flow for those who needed it the most.

In TransUnion's most recent Financial Hardship survey, which was conducted the week of Aug. 2, nearly one-fifth (18 per cent) of consumers said they were receiving some form of financial accommodation with the most common products being credit cards (29 per cent), followed by mortgages (28 per cent), personal loans (17 per cent) and utilities at (16 per cent). 

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Meanwhile, delinquencies and insolvency rates improved in the second quarter. Canadians also appeared to be shifting their mindsets to prepare for the end of financial accommodation programs and government emergency benefits.

Rather than taking on more debt, one-third of Canadians reported using money from their tax-free savings account (TFSA) or registered retirement savings plan (RRSP) to help pay the bills. That is an increase of 345 basis points from the previous month’s survey. 

One of the few areas of credit growth was in mortgage originations, with an increase of 5.3 per cent year-over-year. Low interest rates and low inventory drove up demand as supply dwindled.  

There may be premature alarm bells ringing here for me as I worry mortgage payments will be compromised should more job losses hit in the fall. Time will tell. 

As fear of the pandemic lingers with deferral programs and government benefits winding down, I'm hoping behaviours have shifted and consumers remain focused on building household resiliency as opposed to an increase in consumer delinquency.