The labor market hit the pause button in the third quarter of 2010, temporarily halting the momentum that had consumer credit delinquency rates improving in previous quarters, according to the American Bankers Association's (ABA) Consumer Credit Delinquency Bulletin.
The results were largely unchanged from the second quarter and the composite ratio -- which tracks delinquencies in eight closed-end installment loan categories -- was virtually flat, rising just one basis point from the second quarter to 3.01 percent of all accounts in the third quarter.
Bank card delinquencies were stable, after dropping significantly over the last year -- rising a mere two basis points to 3.64 percent of all accounts, which remains well below the 15-year average (3.92 percent). The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
ABA Chief Economist James Chessen said he isn't surprised that delinquency rate improvements slowed as the job market stumbled in the third quarter, with public sector job cuts (463,000) overwhelming private sector job gains (372,000). "The economy just skipped a beat in the third quarter," Chessen said. "It doesn't move in a straight line and neither do consumer credit delinquencies."
Delinquency rates showed slight upward and downward movement depending on the loan category. RV, marine, property improvement, home equity lines of credit, and non-card revolving loan delinquency rates showed improvement. Auto indirect, bank card and mobile home loans were virtually unchanged. Only personal, auto direct, and home equity loans delinquency rates rose.
Better days ahead
"I think we'll see momentum return and delinquencies improve over the next six months," Chessen said. "There's less uncertainty about the economy now, and consumers and businesses feel more confident. Improvements hinge on a consistent increase in new jobs. We are also encouraged by lower consumer debt levels and higher personal savings rates. This will help rebuild a sense of financial stability."
The second 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.
- Marine loan delinquencies fell from 2.20 percent to 2.04 percent.
- Property improvement loan delinquencies fell from 1.35 percent to 1.23 percent.
- RV loan delinquencies fell from 1.63 to 1.53 percent.
- Direct auto loan delinquencies rose from 1.67 percent to 1.74 percent.
- Indirect auto loan delinquencies rose from 3.01 percent to 3.02 percent.
- Home equity loan delinquencies rose from 3.97 percent to 4.05 percent.
- Personal loan delinquencies rose from 3.55 percent to 3.68 percent.
- Mobile home loan delinquencies remained steady at 4.01 percent.
In addition, ABA tracks three open-end loan categories:
- Home equity lines of credit delinquencies fell from 1.81 percent to 1.74 percent.
- Non-card revolving loan delinquencies fell from 1.21 percent to 1.09 percent.
- Bank card delinquencies rose from 3.62 percent to 3.64 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.