Consumer credit delinquencies were mixed in the third quarter of 2019, with delinquencies falling for bank cards (credit cards provided by banks) and rising for the composite index of closed-end loans, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin. Overall, delinquencies rose in eight of the 11 categories tracked by ABA while three categories fell.
The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, rose 15 basis points to 2.03 percent of all accounts. It remains 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.
“It’s not unusual to see delinquencies slowly return to average levels given that they have remained so low for so long,” said James Chessen, ABA’s chief economist. “The outlook remains positive as a solid job market and rising wages continue to provide a strong foundation for consumers to meet their debt obligations.”
Delinquencies in bank cards fell two basis points to 2.96 percent of all accounts, dipping further below the pre-recession average of 4.33 percent.
“Credit card delinquencies have hovered at low levels for the greater part of the last decade as consumers remain vigilant in keeping credit card debt low relative to their income,” Chessen said. “Low card delinquencies are a testament to careful management by consumers and a cautious underwriting approach by lenders.” (See Economic Charts)
Delinquencies rose in two home-related categories and fell in one. Home equity line of credit delinquencies rose one basis point to 1.07 percent of all accounts, among its lowest post-recession levels but above the pre-recession average of 0.53 percent. Home equity loan delinquencies rose 16 basis points to 2.86 percent of all accounts, above the pre-recession average of 2.12 percent. Property improvement loan delinquencies fell 12 basis points to 1.17 percent of all accounts, remaining well below the pre-recession average of 1.65 percent.
“Home equity loans have become a smaller share of banks’ home-related lending portfolios due to a slow recovery in the real estate market and changes in tax treatment,” Chessen said. “The good news is that home values are rising, which boosts home equity and helps mitigate home-related loan delinquencies by incentivizing consumers to meet their obligations.”
Delinquencies in direct auto loans (those arranged directly through a bank) rose three basis points to 1.15 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 20 basis points to 2.43 percent of all accounts, above the pre-recession average of 2.03 percent.
“Indirect auto loan delinquencies have steadily increased as cars have become more expensive and some consumers have taken on longer loan terms,” Chessen said. “Any bump in the financial road can create problems for people who may have stretched their budget to buy a car.”
Chessen is cautiously optimistic about consumers’ ability to meet obligations in the months ahead.
“The U.S. economy remains fundamentally sound,” Chessen said. “Consumers have done a good job saving over the last few years, but it remains critically important to focus on building up a financial buffer against unexpected expenses such as auto repair or replacing a major appliance.”
The third 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 rose from 1.88 percent to 2.03 percent.
- Property improvement loan delinquencies fell from 1.29 percent to 1.17 percent.
- Direct auto loan delinquencies rose from 1.12 percent to 1.15 percent.
- Home equity loan delinquencies rose from 2.70 percent to 2.86 percent.
- Indirect auto loan delinquencies rose from 2.23 percent to 2.43 percent.
- Marine loan delinquencies rose from 0.69 percent to 0.71 percent.
- Mobile home delinquencies rose from 3.31 percent to 3.47 percent.
- Personal loan delinquencies rose from 1.02 percent to 1.04 percent.
- RV loan delinquencies rose from 0.83 percent to 0.89 percent.
In addition, ABA tracks three open-end loan categories:
OPEN-END LOANS
- Bank card delinquencies fell from 2.98 percent to 2.96 percent.
- Non-card revolving loan delinquencies fell from 1.71 percent to 1.65 percent.
- Home equity lines of credit delinquencies rose from 1.06 percent to 1.07 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.