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Consumers Fall Further Behind in Payments

Third quarter delinquencies hit all-time highs

January 7, 2009

But beneath the surface, things were not okay, and Wednesday's report from the American Bankers Association is just the latest evidence. The ABA reports that during the third quarter of last year, delinquencies on indirect auto loan and home equity lines of credit reached their highest levels ever.

In addition, the composite ratio, which tracks eight closed-end installment loan categories, rose 22 basis points to 2.90 percent of all accounts (seasonally adjusted), the highest level since 1980.

ABA Chief Economist James Chessen said the figures show a continued weakening of the U.S. economy.

"The number one factor in rising consumer credit delinquencies is job losses. With one million jobs lost in the first three quarters and two and a half million expected for the year, delinquencies of all types of consumer loans will likely increase in the coming quarters," Chessen said.

Delinquencies for indirect auto loans, which account for 90 percent of auto loans, rose 18 basis points to a record 3.25 percent. HELOC delinquencies rose seven basis points, marking another record high at 1.15 percent.

The bank card category was one of only two that showed a decline in delinquencies, dropping 34 basis points to 4.20 percent of all accounts. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

"While some people are relying on credit cards to meet daily expenses like food and gas, many are being careful not to add new debt. Reducing debt and building up cash reserves are good strategies right now. If you're under financial stress, credit cards can be a bridge to meet daily expenses. And, unlike other loans with fixed payments, credit cards let you adjust monthly payment amounts. This flexibility is certainly helping people manage debt better during this difficult economic period," Chessen said.

Chessen advised consumers to watch for warning signs of financial problems and act quickly. Warning signs of overextended credit include:

• Paying only the minimum payment month after month;

• Being out of cash constantly;

• Being late on important payments such as rent or mortgage;

• Taking longer and longer to pay off balances; and

• Borrowing from one lender to pay another.

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