Finance Globe

U.S. financial and economic topics from several finance writers.
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Consumer Delinquencies on the Rise

Consumer delinquencies are hitting record levels as continued job losses, shorter work weeks, and falling incomes take their toll on consumer's ability to pay their debts on time, according to a report released Thursday by the American Bankers Association.

ABA's Consumer Credit Delinquency Bulletin showed record-high quarterly delinquency rates in three key loan categories: home equity loans, home equity lines-of-credit, and bank cards.

The composite ratio, which tracks eight closed-end installment loans, also hit a record high at a seasonally-adjusted delinquency rate of 3.35%, compared to 3.23% in the previous quarter. A delinquency is defined by the ABA to be a late payment that is 30 or more days overdue.

ABA Chief Economist James Chessen said the high consumer credit delinquency rates represent the cumulative effect of the longest recession since the Great Depression.

"Six consecutive quarters of job losses have taken their toll," Chessen said. "With jobs lost and work hours cut, it doesn't take long for the financial pressure to become overwhelming. Falling behind on debt payments is an unfortunate side effect of high unemployment and a frozen job market. The picture won't change until the labor market improves and the economy picks up steam. This is going to take time," Chessen added.

Bank card delinquencies rose 26 basis points to a record 5.01% of all accounts. Record delinquency rates occurred in home equity loans - up 49 basis points to 4.01% of all accounts – and in home equity lines of credit – up three basis points to 1.92% of all accounts.

The delinquency rate on marine loans rose from 2.04% to 2.28%, personal loan delinquencies rose from 3.47% to 3.9%, RV loan delinquencies rose from 1.52% to 1.72%, and property improvement loan delinquencies rose from 1.46% to 1.79%.

But the auto loan delinquency rate showed improvement. Direct auto loan delinquencies (loans arranged directly through a bank) fell 55 basis points to 2.46% of all accounts and indirect auto loan delinquencies (loans arranged through auto dealers) dropped to 3.26% of all accounts from 3.42% in the previous quarter. Mobile home loan delinquencies also fell, down to 3.53% from 3.7% in the previous quarter.

"The good news is that consumers are clearly being more cautious by saving more, spending less and making great efforts to repair their balance sheets," Chessen said.

ABA recommends that homeowners having trouble with their mortgage consult or call 1-888-995-HOPE. HOPE NOW is a cooperative effort between counselors, investors, and lenders to help homeowners in distress.

For others who are 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
  • Contact Consumer Credit Counseling Services at 1-800-388-2227

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Tuesday, 21 March 2023

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