Consumer delinquencies show improvement over second quarter of 2017

Delinquencies in closed-end loans held steady in the second quarter as bank card delinquencies fell and home-related categories continued their return to normal levels, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin, which were released early this month.

Overall, delinquencies fell in eight of the 11 individual consumer loan categories tracked by ABA.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, remained at 1.56 percent of all accounts – well below the 15-year average of 2.16 percent.

The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

“We’re in the ninth year of economic expansion when you might expect the pendulum to begin swinging the other way, but delinquencies remain below historical levels as consumers continue to show great command of their finances,” James Chessen, ABA chief economist, said. “The outlook remains very positive, as the strong job market, growing wages and rising wealth provide the financial wherewithal for consumers to keep current on their financial obligations.”

Delinquencies in bank cards (credit cards provided by banks) fell seven basis points to 2.67 percent of all accounts and remain significantly below their 15-year average of 3.64 percent.

“Consumers continue to manage their credit cards very well,” Chessen said. “Quarter after quarter, Americans have succeeded at keeping credit card balances low in relation to their disposable income.”

Delinquencies in all three home-related categories decreased. Home equity loan delinquencies fell nine basis points to 2.50 percent of all accounts, dipping further under their 15-year average of 2.94 percent. Home equity line of credit delinquencies fell four basis points to 1.07 percent of all accounts and remain below their 15-year average of 1.18 percent. Property improvement loan delinquencies fell three basis points to 0.95 percent of all accounts, well below their 15-year average of 1.33 percent.

“Home equity-related delinquencies fell across the board as the housing market continued to improve, and they’re now back down to levels last seen in 2008,” Chessen said. “Increased property values and greater home equity have provided a strong incentive for people to remain current on their home loan obligations.”

Delinquencies in indirect auto loans (those arranged through a third party such as an auto dealer) rose only one basis point to 1.84 percent of all accounts, but remain well below their 15-year average of 2.19 percent. Delinquencies in direct auto loans (those arranged directly through a bank) also rose one basis point to 1.04 percent of all accounts, remaining well under their 15-year average of 1.56 percent.

Chessen is encouraged by current economic conditions and consumer behavior, and remains cautiously optimistic amid uncertainty that lies ahead.

“A strong economy and good consumer practices point toward steady delinquency levels in the near term, but we are also mindful that the hurricanes may have made repayment of debts challenging for consumers in the path of the storms,” Chessen said. “It will take several quarters to fully gauge the regional and nationwide impact the hurricanes will have on consumers’ financial footing.”