Third Quarter Brings Mixed Bag for Loan Delinquencies, ABA Data Shows

The number of people failing to pay off their credit cards fell in the third quarter of 2019 but delinquencies rose for closed-end loans, according to the American Bankers Association’s (ABA) latest Consumer Credit Delinquency Bulletin, published this week.

James Chessen, ABA’s chief economist, said consumers remained “vigilant” regarding their credit card debts, which had resulted in delinquencies falling by two basis points to 2.96% – far below the pre-recession average of 4.33%.

Data from the Federal Reserve Bank of St Louis shows that the delinquency rate on credit card loans across all US commercial banks was 2.58% at the end of September 2019. This figure had remained broadly unchanged throughout the year, but had been on the increase since 2015.

Overall, the ABA – which represents the US’s $18.5 trillion banking industry – reported that delinquencies increased in eight of its 11 categories, including home equity loans, direct and indirect auto loans, mobile home loans, and personal loans.

The ABA’s composite ratio, which tracks late payments across eight closed-ended loan categories, rose by 15 basis points during the third quarter to 2.03% of all accounts. However, this is still below the pre-recession average of 2.09%, the association reported.

“It’s not unusual to see delinquencies slowly return to average levels given that they have remained so low for so long,” said Chessen. “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.”

Personal loan delinquencies rose slightly from 1.02% at the end of June to 1.04% at the end of September, but the late payment rates for non-card revolving loans fell from 1.71% to 1.65%.

Late payments on home equity loans increased by 16 basis points to 2.86% during the period, ABA reported, but property improvement loan delinquencies fell by 12 basis points to 1.17%. House prices were rising, Chessen said, meaning customers were incentivized to make payments on time.

Auto loan delinquencies also rose, with those arranged directly through banks up by three basis points and indirect loans up by 20 basis points, which ABA’s chief economist said reflected the fact that some consumers had stretched their finances to afford a car.

Looking to 2020, Chessen said the US economy was “fundamentally sound”.

“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,” he added.