Consumer card delinquencies rose 1 basis point to 2.42% during the three-month period from the prior quarter and remain significantly below the 15-year average of 3.85%, the banking trade group found. The delinquency rate of 2.41% in the first quarter was the lowest level in 23 years.
Still, delinquencies rose slightly in six out of eight loan categories, including personal loans, property improvement loans and home equity loans. A composite ratio of delinquencies on closed-end consumer loans climbed 6 basis points, to 1.76% in the second quarter.
James Chessen, the ABA's chief economist, says he was surprised that delinquencies rose in so many categories in the second quarter, which was in stark contrast to falling delinquencies in most categories in the first quarter. He says consumers can only deleverage so much. Since delinquency rates have been falling consistently for the past four years, they may finally have hit bottom, he says.
“It raises the issue of how much deleveraging can consumers manage?” Chessen says. “After four years, it’s hard to squeeze out more of that deleveraging. And we’re wondering if this is an early sign that shows we’ve reached the end of improving delinquency rates.”
Personal loan delinquencies rose to 1.94% in the second quarter, up from 1.82% in the first quarter. Home equity loan delinquencies rose to 3.83% from 3.72%. But delinquencies continue to fall in direct auto loans, now at 0.88% from 0.91%.
Consumers may be unable to pay down debt any further given stagnant incomes and a weak job market.
“We’re never going to get delinquencies down to zero,” says Chessen.