Consumer Delinquencies Spike in Third Quarter

Installment loan and bank card delinquencies rose in six of the 11 categories in the third quarter of 2018, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, rose 11 basis points to 1.87% of all accounts. This jump was driven primarily by increases in auto and home equity loan delinquencies.

“These results are not surprising as the economy moderates following some very robust quarters of growth this past year,” said James Chessen, ABA chief economist.  “The home and auto sectors have been lagging, and that’s where we saw the delinquencies edge up a bit.”

Looking at the specific categories, delinquencies in bank cards increased 12 basis points to 3.05% of all accounts.  “Bank card delinquencies remain low by historical standards, which is a direct result of consumers continuing to do a good job of managing their cards by keeping balances low relative to their income,” Chessen said.

Further, home equity loan delinquencies rose 10 basis points to 2.53% of all accounts, while home equity line of credit delinquencies fell 1 basis point to 1.14% of all accounts. Property improvement loan delinquencies rose 7 basis points to 1.14% of all accounts.

Additionally, delinquencies in direct auto loans (directly through a bank) rose 10 basis points to 1.16% of all accounts, while delinquencies in indirect auto loans (through a third party) rose 6 basis points to 1.99% of all accounts.

“We expect fourth quarter numbers will show very strong retail sales, which drives economic growth but can also lead to a financial frostbite if consumers overextend themselves,” Chessen said.  “Prudent consumer spending is key to preventing delinquencies, and every indication is that consumers will continue their sound financial management practices.”

Source: American Bankers Association/Financial Regulation News