Corporate Advisory Solutions projects more defaults despite a decline in household debt this year.
11/18/2020 9:00
ACA International member Corporate Advisory Solutions (CAS) expects the number of defaulted accounts to increase this year, according to its Third Quarter 2020 Tech-Enabled Outsourced Business Services Market Report.
According to Managing Partner Michael Lamm, the number of defaulted accounts will increase despite a projected decline in total household debt during fourth quarter 2020. Outstanding debt levels were aided by a number of temporary measures, including a decline in consumer spending as a result of the pandemic, increased forbearance provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and temporary financial relief from various government stimulus programs, according to CAS.
Lamm also reports short-term prospects are not as positive due to greater uncertainty regarding further stimulus and modest improvements in unemployment levels, which are currently at 6.9% (compared to 4.4% pre COVID-19 in February). An uptick in delinquency is expected to be fueled by moratoriums slowly expiring.
For example, according to a news release from the National Energy Assistance Directors’ Association (NEADA), more than 20% of customers are late on their utility bills. This could increase since moratoriums in nine additional states were set to expire in October.
While many accounts receivable management servicers and debt buyers in the space maintained strong performance through the third quarter, with consumers and businesses having extra disposable income during the pandemic, liquidations have started to decline in certain markets. This trend may continue until further stimulus is provided and/or the unemployment rate drops, according to CAS. Still, it is anticipated the increase in client volume will likely offset any declines in liquidations for the foreseeable future.
Read more in the Third Quarter 2020 Tech-Enabled Outsourced Business Services Market Report.