The financial effects of the coronavirus pandemic may get a lot worse 120 days after the national emergency is officially over. The $2.2 trillion coronavirus stimulus package, known as the CARES Act, recognizes the financial difficulties many Americans are facing, requiring lenders who enter into an agreement with borrowers to delay payments or lower minimum monthly payments to report their accounts as current.
“ ‘There is no language in the CARES Act about how lenders should respond when it expires’ ”
As a result of this agreement, their credit scores won’t be lowered, if they didn’t have any preexisting delinquencies. That would make it easier for these consumers to secure a loan or mortgage in the short and medium term. However, 120 days after the national emergency is terminated they might have a rude awakening from their credit-card company or lender, experts say.
After that period of time, the lender could demand full repayment from the borrower or credit-card holder and, if they’re unable to repay, their credit scores could nose-dive, said John Ulzheimer, credit expert and president of the Ulzheimer Group in Atlanta. That would make it harder or more expensive for them to get a loan, take out a mortgage or even get a new job, he said.
What’s more, there may be different approaches for different borrowers. It’s not likely that credit-card holders will be asked to make a lump sum payment, but those who took out a personal or commercial loan may be asked to make a lump sum payment, said Matt Schulz, chief industry analyst at CompareCards TREE, -1.51%. “There is a lot of ambiguity when all of this ends,” he said.
Schulz advises borrowers to remain vigilant. “Invariably, you’ll have some people who will think, ‘Oh I don’t have to pay this month,’ and they’ll end up making a late payment simply because they’re confused on the terms of what they agreed to,” he said.
Some 15 million Americans are in “financial hardship” programs that allow them to defer or temporarily skip credit-card payments as of April, according to credit-reporting firm TransUnion TRU, -0.21%. Approximately 840,000 personal loans were also in financial hardship programs, TransUnion reported in April according to The Wall Street Journal.
The Consumer Financial Protection Bureau, the branch of the government that regulates consumer financial products and services, did not respond to multiple requests for comment on what Americans could expect after those 120 days. The agency’s website states that “many furnishers are or will be offering consumers affected by COVID-19 various forms of payment flexibility.”
However, Ira Rheingold, executive director of the National Association of Consumer Advocates, a nonprofit consumer-advocacy group, said he has “no faith that the CFPB will do the right thing for consumers.” He expects courts to take on more cases related to falling credit scores after those 120 days have elapsed.
“I hope this ushers a new movement away from credit scores and to holistically making financial judgement on a person based on what their current situation is,” he said.