Applying for CERB while collecting pension
Canada’s most vulnerable debtors are holding up admirably through the worst economic contraction since the Great Depression, thanks to massive government assistance and a steep drop in monthly spending.
Non-bank lenders active in the subprime market — such as goeasy Ltd. and Fairstone Financial Holdings Inc. — are reporting stable or falling delinquencies. National insolvency figures meanwhile are plunging.
The numbers will come as a big relief to policy-makers worried job losses would unleash a wave of defaults in a country carrying among the highest household debt levels in the world. If individuals with the lowest credit ratings are doing well, the rest of the system should be resilient.
It’s “rather counterintuitive,” Jason Mullins, chief executive officer of goeasy, said in a telephone interview.
goeasy, one of the country’s largest non-prime lenders with $1.1 billion in assets, is set to record its lowest ever loan losses in the second quarter, while seeing deferrals fall to below pre-pandemic levels after an initial spike.
Loan demand fell “markedly” once lockdowns began, Mullins said, while the number of borrowers making claims under a loan unemployment insurance program has dropped every week since around the end of April.
“People just expected higher demand and higher losses,” Mullins said. “At the moment we’ve seen in the second quarter lower demand and record low losses.”
Privately-held Fairstone, the country’s largest subprime lender with $3 billion in assets, has seen delinquency and repayment levels remain stable, Fiona Story, vice president of corporate communications, said in an email. Fairstone doesn’t disclose specific numbers for originations or deferral rates.
While estimates vary, about a third of Canada’s 30 million active consumers have “below-prime” credit scores, meaning either subprime or nearprime. They hold about a fifth, or $419 billion, of the country’s total outstanding household debt, according to financial services research firm TransUnion.
Signs of healthy nonprime credit performance are in line with other data that show Canadians are managing to avoid the worst effects of the crisis. Insolvency filings declined 51 per cent to 6,111 in May, according to data released Thursday by the Office of the Superintendent of Bankruptcy, the lowest total volume since 2000.
Industry executives credit Prime Minister Justin Trudeau’s government for pumping tens of billions into household bank accounts to support those who lost work. In addition, monthly expenses have fallen with people on lockdown avoiding bars, restaurants, sporting events and travel. Deferrals on mortgages and consumer loans are also giving people more breathing room.
Loans Canada, a comparison website that matches subprime borrowers with more than 70 lenders and service providers, saw loan applications fall by more than half after the lockdowns began, according to Scott Satov, a chartered accountant and founder of the company.
“People are in better financial shape with the government assistance,” Satov said in a phone interview. “When the economy’s opened up, you’re shopping, you’re buying clothes, you want a fancier car. If you’re not going anywhere, it kills all the spending.”
It’s unclear what happens when government benefits run out and the deferrals stop. Some say it’s only a matter of time before losses, delinquencies and insolvencies begin to accelerate.
“Those social programs aren’t going to last forever,” Chris Sinclair, a licensed insolvency trustee at Smythe Insolvency in Vancouver, said in a phone interview. “Consumer insolvency filing numbers are down now but will begin rising, possibly as early as September.”
Mullins at goeasy takes a more sanguine view, saying the government isn’t likely to discontinue emergency income support unless the economy is on a more solid footing.
If the virus remains under control and there’s a continued gradual reopening, “our expectation is that we’ll continue to see, as we have, very strong and healthy performance in the nonprime credit market,” he said.