A new report by the American Banker’s Association (ABA) shows that consumer delinquencies in closed-end loans were on the rise in the first quarter 2017. The ABA said the increase was mainly caused by more consumers becoming late on their auto loans and the fact that delinquencies rose in 7 of the 11 individual consumer loan categories.
Delinquencies are measured by any loan that where the borrower is 30 days or more late on payments.
The ABA’s Consumer Credit Delinquency Bulletin rose 5 basis points to 1.56% of all accounts but remains well below the 15-year average of 2.17%. But let us also keep in mind that 5 of those years we were in a massive financial crisis which caused the average to rise considerably during those crisis years.
The ABA’s chief economist, James Chessen, had said;
“Eight years into the economic recovery, it was inevitable that we’d start to see delinquencies edge up from their extremely low levels. Even in a strong economy with good job growth, there are always people living paycheck to paycheck. Any small bump in the road can be enough to cause them to miss a payment or two on their loan. The good news is that most consumers have been careful to manage their debt levels to ensure they can withstand those small setbacks and meet their obligations.”
The ABA said that delinquencies in home-related categories fluctuated modestly. Home equity loan delinquencies fell 2 basis points to 2.59% of all accounts, holding under their 15-year average of 2.95%. Home equity line of credit delinquencies rose 5 basis points to 1.11% of all accounts, but remain below their 15-year average of 1.18%. Property improvement loan delinquencies held steady at 0.98% of all accounts.
“As home prices have risen, home-related delinquencies have returned to normal levels,” said Chessen. “Greater equity incentivizes people to remain current on their mortgage loans, and we expect this gradual improvement to continue.”
Auto loans that are made indirectly through third party lenders such as an auto dealer increased 8 basis points to 1.83% of all accounts, but remain well below their 15-year average of 2.20%. Auto loan delinquencies for direct auto loans (those arranged directly through a bank) rose 9 basis points to 1.03% of all accounts, remaining well under their 15-year average of 1.57 percent, according to the ABA.
“The gloss is fading a bit on auto lending as delinquencies rise,” Chessen said. “The thrill of a new car shouldn’t override the need for consumers to balance affordability and loan duration to ensure they’re not taking on too much for too long.”
Delinquencies in bank cards (credit cards provided by banks) rose 5 basis points to 2.74% of all accounts, after falling by 5 basis points in the fourth quarter of 2016. Bank card delinquencies remain significantly below their 15-year average of 3.65%.