Consumer Delinquencies Fall in All Categories in Q4 2011

Consumer delinquencies fell in all 11 loan categories tracked by the American Bankers Association, which today released results from the fourth quarter 2011 Consumer Credit Delinquency Bulletin.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 10 basis points to 2.49 percent of all accounts in the fourth quarter, the lowest it has been since 2008. Bank card delinquencies continued to improve, falling eight basis points to 3.17 percent of all accounts in the fourth quarter, the lowest since 2001. (See Historical Fact Sheet.)

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.

“You can’t get a better consumer credit report card than this,” Chessen said. “It’s very rare that delinquencies improve in every single loan category. The last time that happened was in the fourth quarter of 2004,” he added.
However, Chessen said the delinquency rate on the composite ratio is still too high.

“Even with a strong quarter, there’s still room for improvement in delinquencies,” Chessen said. “Troublesome performance in housing-related loans is keeping overall delinquency rates elevated. The housing sector continues its painful adjustment, and it will take a long time before delinquency rates return to normal,” he said.

Home equity loan delinquencies appear to be the most stubborn, falling just 4 basis points to 4.08 percent of all accounts in the fourth quarter. Property improvement loan delinquencies fell 3 basis points to 0.93 percent of all accounts and home equity lines of credit delinquencies dropped 24 basis points to 1.69 percent of all accounts.

But Chessen said consumers have reason to feel positive.

“The economic tide at the end of 2011 lifted most boats. The deleveraging of consumer credit is paying dividends now. Consumers are being careful about taking on new debt; they’re managing the debt they do have much better and the amount of debt as a portion of income is going down,” Chessen said, adding, “The biggest concern I have now is retail gas prices.” (See economic charts.)
Chessen noted that average gas prices have risen 71 cents per gallon since tensions increased in the Middle East over Iran’s nuclear program in mid-December.

“That’s $70 billion that could have gone towards other kinds of spending or to pay down debt,” he said.

Looking forward, Chessen expects delinquency rates to improve but says they are unlikely to repeat this quarter’s unusual rate of improvement.

“The good news is that fewer people are losing their jobs and more people are becoming re-employed. Those two factors combined means more people are better positioned to meet their debt obligations,” he said.

The fourth quarter 2011 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
Decreased Delinquencies:
• Personal loan delinquencies fell from 3.00 percent to 2.87 percent.
• Direct auto loan delinquencies fell from 1.15 percent to 1.06 percent.
• Indirect auto loan delinquencies fell from 2.60 percent to 2.47 percent.
• Mobile home delinquencies fell from 4.08 percent to 3.76 percent.
• RV loan delinquencies fell from 1.38 percent to 1.31percent.
• Marine loan delinquencies fell from 1.72 percent to 1.57 percent. Property improvement loan delinquencies fell from 0.96 percent to 0.93 percent.
• Home equity loan delinquencies fell from 4.12 percent to 4.08 percent.

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

OPEN-END LOANS
Decreased Delinquencies:
• Home equity lines of credit delinquencies fell from 1.93 percent to 1.69 percent.
• Non-card revolving loan delinquencies fell from 1.43 percent to 1.40 percent.
• Bank card delinquencies fell from 3.25 percent to 3.17 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 web page at http://www.aba.com/abaef/consumers.htm.

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.

The American Bankers Association represents banks of all sizes and charters and is the voice for the nation’s $13 trillion banking industry and its two million employees. Learn more at aba.com.