As credit unions contemplate the end of 2020, it’s no surprise there is some consternation. The U.S. added 1.4 million jobs in August as employers brought back workers and the unemployment rate fell to 8.4 percent. But for those employees without jobs, the lack of government stimulus has raised the specter of missing payments and potential eviction. Consumer confidence continued to slide, reflected in the Conference Board Consumer Confidence Index®. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, decreased sharply from 95.9 to 84.2. The Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, declined from 88.9 in July to 85.2 this month.
On the financial side of the equation, the Federal Deposit Insurance Corporation released its quarterly report recently, showing in stark detail how the pandemic is ensnaring banks big and small. Profit margins hit an all-time low as institutions stashed away reserves to deal with potential future loan trouble. Conversely, fee income hit a record high, as consumers also stashed away cash. The report signaled that financial institutions anticipate a longer, deeper recession than the original forecast. While government stimulus offered a temporary reprieve, it likely just delayed the pain. Many lenders are bracing for a wave of defaults. With the Federal Reserve expected to keep interest rates low for the foreseeable future, lenders will need to increase fees or find other ways to replace some of that income.
Auto Loan Money to be Made
But there were a couple of glimmers of hope as we closed out the summer months. Used-vehicle lending remained a bright spot for credit unions as used-car values continued to climb. While credit unions struggle to compete for new-car consumers with automotive lenders who offer zero percent interest and seven-year notes on new vehicles, credit unions continue to remain in the fight for used-vehicle auto loan volume.