Fewer late payments on cards show consumer strength, banks say

30-day delinquency rate fell in second quarter, industry report says

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations.

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Late payments on bank-issued credit cards fell in the second quarter from their already low levels, showing that U.S. consumers remain in sound financial shape, the American Bankers Association announced Thursday.

“We saw a pretty significant decline in credit card delinquencies in the second quarter,” ABA chief economist James Chessen said. “I think that is a sign consumers are continuing to be very careful in managing their credit card debt.”

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Only 2.67 percent of bank card accounts were delinquent, meaning they were 30 days or more late on a payment. That was down from 2.74 percent in the first quarter. 

A year ago, however, delinquencies were even lower, at 2.48 percent of accounts in the second quarter of 2016.

The long-term average over the past 15 years is 3.64 percent of accounts delinquent. During the Great Recession, in 2009, the rate rose above 5 percent.

The picture is rosier than the second-quarter report card released earlier this year by the Federal Reserve Bank of New York. In its Household Debt and Credit report, the New York Fed said that new delinquencies on credit cards are accelerating. Based on the dollar amount of balances, new “serious” delinquencies of 90 days late or more rose to 4.42 percent of balances, from 4.07 percent in the first quarter and 3.51 percent from a year earlier.

Economists at the New York Fed said the rate “climbed notably” over the year, while saying that delinquencies overall remain relatively low.

Two ways of measuring delinquencies
Why the gap? The two reports draw from widely different sources. The ABA bulletin is based on a survey of 300 banks that are representative of the U.S. banking industry. The New York Fed’s report is drawn from a sample of about 40 million U.S. consumers’ credit reports.

Perhaps more important, the two reports measure delinquency differently. The ABA looks at the fraction of card accounts that are late. The New York Fed report measures the dollar size of delinquent accounts as a fraction of total balances, without regard to the number of accounts that are late. That means the two figures can move in different directions.

“The number of accounts gives a signal for the number of people having difficulty meeting their obligations,” Chessen said. The dollar-based figure is most important to banks, as a measure of loss risks.

The total balance on credit cards has been climbing toward its former pre-recession peak level above $1 trillion. In July, balances rose $2.6 billion to $994.5 billion, seasonally adjusted. Economists note that today’s balances are on a larger economic base, as consumers’ total incomes and wealth is greater than pre-recession levels.

Other findings from the report
Looking more broadly at consumer debt, eight of the 11 types of consumer debt tracked in the ABA study improved in the quarter. The ABA composite delinquency ratio, which tracks eight kinds of closed-end installment loan types, held steady. The composite delinquency rate was 1.56 percent of all accounts, up from 1.35 percent a year ago – which was a record low. The 15-year average of the composite rate is 2.16 percent of delinquent accounts.

Among individual account types, the ABA said:

  • “Direct” auto loan delinquencies, meaning car loans from a bank or credit union, rose from 1.03 percent to 1.04 percent in the second quarter.
  • “Indirect” auto loans delinquencies, arranged by a dealership, rose from 1.83 percent to 1.84 percent.
  • Home equity loan delinquencies improved from 2.59 percent to 2.50 percent.
  • Personal loan delinquencies improved from 1.54 percent to 1.52 percent.

Chessen said the outlook is good, with the economy growing and unemployment rates below 5 percent. While incomes will rise, it will be natural for delinquency rates to climb toward more normal levels as a result of consumers’ economic activity. “We’re in the ninth year of economic expansion,” he said. “I’d expect more volatility in delinquencies.”

See related: Fed: Card balances jumped by $2.6 billion in July

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Updated: 04-18-2019