Pattie Lovett-Reid

Chief Financial Commentator, CTV

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Prior to the pandemic, some Canadians were already struggling to hang on financially.

According to a new report from TransUnion, eight per cent of consumers who use credit (three per cent of the population) already had a history of missing payments and are generally only able to make a minimum payment on credit products each month. The delinquency rate is about 17 per cent for this group, which is almost three times the overall rate, TransUnion said.

Concern for this group has been mounting, but as long as minimum payments were made, accounts were held in reasonable standing and overall delinquencies were considered low by any standard. The employment landscape was strong, rates remained low, and for those thought to be less vulnerable were even starting to see a little deleveraging as Canadians made a concerted effort to clean up their balance sheets. 

That was then and this now.

The reality is once the pandemic hit and job losses escalated, the financial lifeline offered by way of government programs was barely enough for some families to keep a roof over their heads and food on the table. Making a payment on an outstanding debt is not likely a top priority. 

Those thought to be less vulnerable are now seeing how exposed they were to a financial shock. Non-mortgage debt could climb to 6.9 per cent by the end of the third quarter this year, according to the TransUnion report published Thursday.

“Elevated unemployment and its effect on consumers’ income and ability to pay debt obligations is a primary driver of increased delinquency,”  Matt Fabian, director of financial services research and consulting at TransUnion, said in a release.

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“The various government relief benefits, combined with deferral programs provided by lenders, can act to offset some of the COVID-related delinquency. However, each of these measures may contribute to long-term risk at a future time, as consumers will generally still be responsible for paying these deferred obligations at some point in the future.”​

This will leave the governments in a precarious balancing act when aid packages start to dry up.

The reality is millions of Canadians have lost their jobs since the pandemic began in March, with nearly 2 million job losses in April alone. And the financial landscape isn't going to get easier. Job losses will continue to grow, and while companies were quick to lay people off, the re-hiring process will be slow with industries such as tourism, retail, aviation, and food services decimated as the uncertainty mounts. 

Canadians are trying to be resilient and doing what they can to get through this crisis. But the day of reckoning has likely come for those whose income levels are too low, and debt is too high.

How high delinquencies go will likely be driven by how long the crisis continues. It will all come down to one word: jobs.​