Consumer credit delinquencies were mixed in last year’s fourth quarter, with delinquencies falling for the composite index of closed-end loans and rising in other open-end loan categories, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin. Overall, delinquencies fell in six of the 11 categories tracked by ABA while five categories rose.
The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell nine basis points to 1.78 percent of all accounts. It remains well below the pre-recession average of 2.09 percent (from the first quarter of 2002 to the third quarter of 2007). (See Historical Graphics) The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
“The delinquency trends we’re seeing are typical of what happens at this stage in the business cycle, particularly as it relates to auto and credit card delinquencies,” said James Chessen, ABA’s chief economist. “Consumers’ financial health overall remains solid, supported by a strong job market and continued wage growth.”
Delinquencies in bank cards (credit cards provided by banks) increased 17 basis points to 3.22 percent of all accounts. They remain well below the pre-recession average of 4.33 percent.
“Delinquencies remain low by historical standards, reflecting continued prudent use by card holders who have kept their balances remarkably low relative to their disposable incomes,” Chessen said. “A key factor has been the Fed, which has raised rates seven times over the last two years. This has increased the cost of credit, which translates into fewer loans and somewhat higher delinquencies.” (See Economic Charts)
Delinquencies fell in all three home-related categories. Home equity line of credit delinquencies fell five basis points to 1.09 percent of all accounts, which remains among its lowest post-recession levels but above the pre-recession average of 0.53 percent. Home equity loan delinquencies fell one basis point to 2.52 percent of all accounts, above the pre-recession average of 2.12 percent. Property improvement loan delinquencies fell two basis points to 1.12 percent of all accounts and remain well below the pre-recession average of 1.65 percent.
Delinquencies in direct auto loans (those arranged directly through a bank) fell eight basis points to 1.08 percent of all accounts, remaining well below the pre-recession average of 2.09 percent. Delinquencies in indirect auto loans (those arranged through a third party such as an auto dealer) rose nine basis points to 2.08 percent of all accounts, above the pre-recession average of 2.03 percent.
Chessen expects delinquencies to trend toward normal levels as the economy slowly moderates.
“Banks remain vigilant in their underwriting approach,” Chessen said. “The Fed has put further rate increases on hold unless there are clear signs of inflation, and that in part recognizes the tightening of credit across some key markets. Consumers remain on strong financial footing, and continuing their strong track record of spending within their means is the best approach to meeting all of their obligations.”
The fourth quarter composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.
CLOSED-END LOANS
- Composite Ratio fell from 1.87 percent to 1.78 percent.
- Direct auto loan delinquencies fell from 1.16 percent to 1.08 percent.
- Home equity loan delinquencies fell from 2.53 percent to 2.52 percent.
- Mobile home delinquencies fell from 4.39 percent to 3.84 percent.
- Personal loan delinquencies fell from 1.45 percent to 1.26 percent.
- Property improvement loan delinquencies fell from 1.14 percent to 1.12 percent.
- Indirect auto loan delinquencies rose from 1.99 percent to 2.08 percent.
- Marine loan delinquencies rose from 0.70 percent to 0.72 percent.
- RV loan delinquencies rose from 0.75 percent to 0.77 percent.
In addition, ABA tracks three open-end loan categories:
OPEN-END LOANS
- Home equity lines of credit delinquencies fell from 1.14 percent to 1.09 percent.
- Bank card delinquencies rose from 3.05 percent to 3.22 percent.
- Non-card revolving loan delinquencies rose from 1.60 percent to 1.70 percent.
Consumer Tips For borrowers having trouble paying down debts, ABA advises taking action — sooner rather than later — to solve debt problems. Proven tips are listed below. Additional consumer information on budgeting, saving, managing credit and more is available at ABA.com/Consumers.
- Contact Consumer Credit Counseling Services at 1-800-388-2227;
- Talk with creditors – the sooner you talk to them, the more options you have; and
- Don’t charge more purchases until your problems are solved.
Glossary
Indirect auto loan: loan arranged through a third party such as an auto dealer.
Direct auto loan: loan arranged directly through a bank.
Delinquency: late payment that is 30 days or more overdue.
Bank card: a credit card provided by a bank.
Closed-end loan: a loan for a fixed amount of money with a fixed repayment period and regularly scheduled payments.
Open-end loan: a loan with a fixed amount of available credit but a balance that fluctuates depending on usage such as a line of credit.
Non-card revolving loan: an unsecured, open-end loan that is not linked to a credit card. Examples may include lines of credit for overdraft protection or check credit.
The American Bankers Association is the voice of the nation’s $17.9 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard nearly $14 trillion in deposits and extend more than $10 trillion in loans.