Tags: ABA | consumer | delinquencies | Chessen

ABA: Delinquent Consumers Are Wising Up

By    |   Tuesday, 09 April 2013 07:40 AM

Delinquencies in consumer bank payments have hit a favorable trend, with credit card delinquencies in particular hitting an 18-year low in the fourth quarter of 2012, according to the American Bankers Association (ABA).

The upbeat assessment also found delinquencies, defined as a late payment that is 30 days or more overdue, in all three home-related loan categories — property improvement loans, home equity loans and home equity lines of credit — fell in the fourth quarter.

During the fourth quarter of 2012, bank card delinquencies fell 28 basis points to 2.47 percent of all accounts — an 18-year low and well below the 15-year average of 3.87 percent.

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The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, ranging from personal loans to auto loans and property loans, fell 17 basis points to 1.99 percent of all accounts in the fourth quarter, below the 15-year average of 2.39 percent.

James Chessen, ABA’s chief economist, said the reduction in overdue bank payments by Americans shows they are building defenses against economic uncertainty.

“Consumers continue to carefully manage their finances in an effort to get debt levels under control and build up a secure financial base,” he noted.

“While this conservative approach to credit may slow economic growth in the short term, it portends stronger, more consistent growth in the future. The sharp decline in delinquencies reinforces the notion that the economic recovery has become more self-sustaining and is on a path to increased growth.”

But Chessen said potential fiscal pitfalls have not disappeared altogether for American consumers.

“Make no mistake about it, a great deal of uncertainty still lingers over this economy. Furloughs from sequestration, falling disposable income and increased healthcare and regulatory costs for businesses could lead to challenges in the year ahead.”

However, a separate report by the New York Federal Reserve Board found the percentage of student loans delinquent by more than 90 days climbed to 11.7 percent in the fourth quarter of 2012, up from 8.7% at the end of the first quarter of the year.

Banks are still keeping loan standards stringent and have also been writing off many loans as uncollectible since the 2008 financial crisis, which get the bad loans off the books and not included in the ABA survey, according to the Los Angeles Times.

“Consumers learned some pretty hard lessons,” Chessen told the Times. “I think there’s more of a focus on safety.”

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Delinquencies in consumer bank payments have hit a favorable trend, with credit card delinquencies in particular hitting an 18-year low in the fourth quarter of 2012, according to the American Bankers Association (ABA).
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