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ABA: Consumer delinquencies continue decline in first quarter

Last week, the American Bankers Association released its results for the first quarter of the year on consumer delinquencies. The ABA noted that consumer delinquencies fell in 10 of 11 categories tracked by the ABA.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 14 basis points to 2.35 percent of all accounts in the first quarter, the best quarter since 2007 and below the 15-year average of 2.40 percent. Bank card delinquencies also continued their descent, falling nine basis points to 3.08 percent of all accounts in the first quarter, the lowest since 2001 and below the 15-year average of 3.93 percent. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

Overall, ABA Chief Economist James Chessen said the news was very encouraging, considering delinquencies declined in nearly every category. In the previous quarter, delinquencies fell in all 12 categories.

“This is another strong quarter of improving delinquencies. Consumers have done a remarkable job getting their finances under control,” Chessen said. “Improvement was all the more remarkable when you consider that gas prices rose 66 cents a gallon in the first quarter alone. That's a significant amount of money that was diverted from other uses, including paying off debt. Gas prices have fallen 48 cents a gallon since the first quarter so that pressure has abated somewhat and freed up precious resources."

The only category where delinquencies rose was home equity lines of credit. Chessen attributed the increase to the painful adjustment still underway in the housing sector. “It will be many quarters before delinquencies on home equity loans get back to anything close to normal,” he said.

But Chessen said consumers have ample reason to feel positive.

“Overall debt levels have declined dramatically and savings continues to grow. This means many consumers have more capacity to absorb a financial shock, and that's a good place to be,” he said.

Looking forward, Chessen expects delinquency rates to continue to improve but not as dramatically as in the last two quarters.

“We've moved back to historical norms now and further improvement could be hard to achieve. The economy has slowed recently and uncertainty remains high. This means banks will continue their prudent approach to extending new consumer credit as high unemployment levels are still creating loan losses,” Chessen said. “However, continued growth in jobs, moderating gas prices, and steady growth in personal income all will help consumers build a strong financial base.”

The first quarter 2012 composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.

Decreased Delinquencies:

  • Personal loan delinquencies fell from 2.87 percent to 2.01 percent.
  • Direct auto loan delinquencies fell from 1.06 percent to 0.86 percent.
  • Indirect auto loan delinquencies fell from 2.47 percent to 2.41 percent.
  • Mobile home delinquencies fell from 3.76 percent to 3.25 percent.
  • RV loan delinquencies fell from 1.31 percent to 1.11 percent.
  • Marine loan delinquencies fell from 1.57 percent to 1.44 percent.
  • Property improvement loan delinquencies fell from 0.93 percent to 0.83 percent.
  • Home equity loan delinquencies fell from 4.08 percent to 4.00 percent.

In addition, ABA tracks three open-end loan categories:

Increased Delinquencies:

  • Home equity lines of credit delinquencies rose from 1.69 percent to 1.78 percent.

Decreased Delinquencies:

  • Non-card revolving loan delinquencies fell from 1.40 percent to 1.18 percent.
  • Bank card delinquencies fell from 3.17 percent to 3.08 percent.

Consumer Tips:

  • For borrowers having trouble paying down debts, ABA advises taking action – sooner rather than later – to solve debt problems with the following tips:
  • Talk with creditors – the sooner you talk to them, the more options you have;
  • Don't charge more purchases until your problems are solved;
  • Avoid bankruptcy – it's a short-term solution with long-term consequences; and
  • Contact Consumer Credit Counseling Services at 1-800-388-2227.

For more information on budgeting, saving and managing credit, visit the ABA Education Foundation's consumer webpage at http://www.aba.com/Consumers/Pages/ConsumerInformation.aspx.

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.

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