HIGH POINT — Pay cuts and furloughs arising from the COVID-19 crisis are impacting all consumers’ ability to purchase home furnishings, none more so than younger shoppers.

Still working toward their prime income years and facing large amounts of debt for student loans, the economic pressures of the pandemic have particular effect on a young demographic still early on in their careers.
See related story: Lenders look at younger consumers’ credit behavior, second-look financing

With primary lenders tightening their requirements for consumer financing and an uncertain near- and potentially long-term economic outlook, second-look lenders see more demand across demographics, especially among younger people, for their services moving forward and are addressing that potential demand with new programs that are accessible in-store, online and on mobile devices.

While not a lender itself, Versatile Credit’s technology platform enables retailers to offer financing programs from more than 20 prime, secondary and no-credit providers, and the company sees secondary financing, along with tertiary programs, gaining ground.

“An unfortunate result of this crisis will be a greater need for second-tier financing for many consumers,” said Sam Miller, creative strategist at Versatile Credit. “We work with a fantastic collection of lending partners servicing this space and understand how focused they are on providing comprehensive, competitive products to service consumers and help retailers build a successful financing program. This crisis will be an opportunity to bring awareness to this tier and all it has to offer.”

Versatile’s technology aims at easing the transition to secondary and tertiary lenders while streamlining the application process for consumers and providing instant decisions.

“Transition-to-mobile technologies were a big focus for us coming into 2020, and this technology has now become more relevant than ever,” Miller said.

Lenders’ take

Furniture Today reached out to several companies offering second-look financing to get their thoughts on younger consumers’ particular ability to access credit and how their financing programs fit in.

COVID-19’s disruption will extend throughout all levels of financing, according to Mike Rittler, head of TD Bank Retail Card Services.

“There tends to be a pretty direct correlation between the economy and unemployment and credit availability,” he said. “The current economy will have impact on credit availability across the spectrum.”

Fortiva’s 20 years of experience indicate that two consistent actions during economic uncertainty create more demand for second-look financing.

“First, new entrants who have less experience and are less well capitalized pull back or stop extending credit,” said Fortiva CEO Jeff Howard. “Secondly, providers of credit to prime consumers typically tighten underwriting standards.

“Young consumers tend to have lower credit scores and incomes, making access to credit generally more challenging. This is exacerbated during times of financial stress due to (those) factors.”

Genesis Credit President Mark Denman said young consumers seeking credit are caught in the cross hairs of dealing with a health and economic crisis and carrying an unprecedented amount of debt.

“Although the generation before them had to weather the 2008 financial crisis, they did so from a position of much greater financial health,” Denman said. “Generation X had approximately twice the total assets of Millennials today.  According to Pew Research, Millennials are crippled by having more student debt than any other generation.”

That will get only more challenging, he added.

“We know primary lenders are reducing approval rates for certain higher-risk borrower populations, increasing income and employment verification requirements, and adjusting their marketing mix, focusing on channels where they have the most flexibility to control volume and credit quality,” Denman said.

Credit availability, particularly for younger consumers, should not be inversely impacted assuming the economy starts turning the corner in the third quarter, according to Ryan Ray, president of Vive Financial. Vive Financial is the second-look financing operation of Progressive Leasing.

“The longer it takes for the economy to return to normal, the greater the risk to availability of credit as some lenders may begin to pull back,” Ray added. “However, we believe most lenders are currently in a holding pattern, looking closely at the underlying health of the consumer and not over-reacting to the daily swings in the headlines.

“Additionally, the government relief programs have helped consumers in the short term, and we expect the federal government will continue to do what is necessary to prevent long-term damage to the economy.”

Alternative measurements

Denman said the incorporation in recent years of factors beyond traditional FICO measurements to gauge credit-worthiness is helping lenders make more thoughtful underwriting decisions, especially for younger consumers with little credit history.

“We analyze a host of variables, beyond the customer’s FICO score or date of birth,” he said, which enables Genesis to develop a customized scoring model designed to provide more consumers access to credit. “This allows us to take on more risk and provide options that closely mirror the primary lender offerings.”

TD Bank’s Rittler said one result of the COVID-19 crisis will be a “rich learning experience” for finance companies regarding the usefulness of alternative credit measurements in making lending decisions.

“With younger consumers, the traditional credit score might not be an accurate measure because they may have demonstrated the ability to handle debt in different ways, whether that’s how they handle their cell phone bill, their lease payments, different things that may not be fully captured,” Rittler said.

“How well does the retail partner know its customer? What does that background history tell you about their credit worthiness? Over the past 10 years or so, the use of that type of information has become more commonplace, so through this downturn we’ll learn a lot about the reliability of that data in helping us understand their credit-worthiness.”

TD Bank also looks to adapt to how more retailers are getting more out of their online channel.

“For us, it’s making sure we have the financing programs that will be attractive to customers as you present them in a slightly different way than you would in brick-and-mortar stores,” Rittler said. “Right now, it’s a matter of do you have payments that feel manageable even in uncertain times.”

That includes longer term plans: “Where in the past we looked at 60 months, even 72 months, right now we’re looking at the applicability of going even longer than that, maybe 84 months,” Rittler said.

Fortiva’s e-commerce offerings also have much greater emphasis since its retail partners rely more on digital channels.

“Because of our experience, we can offer many program alternatives and support any shopping experience our merchant partners demand,” Howard said. “In-store, on-line, mobile, in-home and call center are all supported with programs specific to each partner’s needs.”

Fortiva also has created a program offering an installment loan structures with the flexibility, repeat purchase functionality and brand reinforcement that comes with a line of credit.

“These programs are designed to provide consumers the consistency of an installment loan and the flexibility of a traditional credit card, which eliminates the need to reapply each time a purchase is made,” Howard said. “We also offer deferred interest, lower interest and special promotional programs that meet the unique needs of our individual client relationships.”

Ray said Vive Financial is continually testing and learning new financing terms that meets the needs for younger consumers and home furnishings retailers.

“We have the flexibility to adjust monthly payment terms and offer promotional APR terms,” he said. “Our customers appreciate that large purchases are obtainable with our program and fits within their budgets with affordable monthly payments. Our program has more appeal during the pandemic, as affordable monthly payment terms are more desirable, especially for consumers who recently experienced a reduction of income.”

Denman said Genesis aims to make its programs consumer-friendly and resilient for all market conditions, with an eye toward financing that mirror those of primary lenders, focusing on affordability and removing barriers to entry, but without the potential long-term cost to consumers of a tertiary program.

“We offer a no-money-down, revolving line of credit, with special financing terms and APRs much more closely aligned with the primaries,” he said, adding that payments are low enough to make for favorable out-of-pocket costs to consumers compared with tertiary programs. “For these reasons our merchant partners experience customer acceptance rates in excess of 80%.”

A helping hand

How are lenders working with consumers facing reduced or no paycheck during the pandemic?

Ray said Vive Financial has helped consumers weather other storms such as the 2008 financial crisis and the economic downturn following 9/11, and now this pandemic.

“Vive customers financially impacted by COVID-19 can defer their payments, receive an extension of promotional APR terms and will not be charged late fees,” Ray said.

Genesis Credit’s financial solutions for those consumers impacted by COVID-19 include, but are not limited to, reduced APR for six months, reduced minimum monthly payments, hardship programs, suppressed late and over-limit fees, and extension of special financing terms.

“The supportive steps we’ve taken are proving to have a positive effect, and we are meeting the needs of those most impacted,” Denman said. “Even in this time of crisis, we are experiencing exceptionally strong payment behavior and communication from those needing assistance, while maintaining our best-in-class service levels to offer personalized service.”

In response to COVID-19, TD Bank instituted a consumer and customer relief program called TD Cares, which incorporates all operations from banking to card services to loans, benefiting multiple customer segments, product and service offerings.

“Basically, it’s an opportunity to help customers weather the tough times right now, opportunities for payment deferrals that don’t have any negative impact on their credit reporting,” Rittler said.

Based on their needs, TD customers may request certain fee refunds, early no-penalty access to certificates of deposit, loan assistance, and other relief options. Card holders are eligible for payment deferments of up to 90 days and late fee refunds.

Howard at Fortiva said the company has maintained consistent, reliable service to its customers and merchant partners during the pandemic.

“Consumers can rely on us to provide support in multiple ways, including extending credit line increases and allowing consumers in need to defer payments, have fees waived, and negating negative credit bureau reporting for those affected by the pandemic,” he said. “We have call centers in five countries that are open and helping our consumers every day.”

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