WASHINGTON (April 4) – Momentum returned to improving consumer delinquency rates in the fourth quarter of 2010 with nine of eleven loan categories showing reduced delinquencies, according to the American Bankers Association's Consumer Credit Delinquency Bulletin. Bank card delinquencies dropped 36 basis points to 3.28 percent of all accounts – the lowest level in almost a decade and well below the 15-year average (3.92 percent). (See Historical Fact Sheet.)
The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell to 2.68 percent of all accounts in the fourth quarter, an improvement of 33 basis points compared to the previous quarter. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
ABA Chief Economist James Chessen called the news encouraging.
"Consumers are clearly showing better control at managing their debt even while increasing their borrowing, especially in auto loans and student loans," Chessen said. "At the same time, household wealth is up, hiring is up and unemployment is down. When people have jobs, they can spend more and pay their bills on time." (See economic charts.)
Housing loans were the only laggards but even they held steady. Home equity loan delinquencies were unchanged at 4.05 percent of all accounts and delinquencies in home equity lines of credit dropped just one basis point to 1.73 percent of all accounts in the fourth quarter. Property improvement loan delinquencies was the only category to increase – by just 3 basis points to 1.26 percent of all accounts.
Looking towards the first quarter of 2011, Chessen said world events have created some uncertainty about whether consumers would be able to continue paying their bills on time.
"I'm feeling hopeful about further declines in delinquencies because of continuing job growth," Chessen said, "but the unknowns are the impact of higher gas and food prices. The two percent reduction in federal payroll taxes that began in January was intended to boost discretionary income. Unfortunately, rising prices have dashed any chance of that," he added.
The fourth quarter 2010 composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.
• Personal loan delinquencies fell from 3.68 percent to 3.08 percent.
• Direct auto loan delinquencies fell from 1.74 percent to 1.44 percent.
• Indirect auto loan delinquencies fell from 3.02 percent to 2.66 percent.
• Mobile home loan delinquencies fell from 4.01 percent to 3.92 percent.
• RV loan delinquencies fell from 1.53 percent to 1.40 percent.
• Marine loan delinquencies fell from 2.04 percent to 1.89 percent.
• Property improvement loan delinquencies rose from 1.23 percent to 1.26 percent.
• Home equity loan delinquencies remained steady at 4.05 percent.
In addition, ABA tracks three open-end loan categories:
• Bank card delinquencies fell from 3.64 percent to 3.28 percent.
• Home equity lines of credit delinquencies fell from 1.74 percent to 1.73 percent.
• Non-card revolving loan delinquencies fell from 1.09 percent to 0.87 percent.
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.
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.