First Warning Signs Of Trouble Will Be Made of Plastic
The first sign a member is in financial trouble can usually be found in the form of plastic, and credit union officials around the nation are bracing for increases in credit card delinquencies.
A recent ABA study showed credit card delinquencies jumping in the second quarter, and that was before Hurricanes Katrina and Rita struck the Gulf Coast. A record 4.81% of credit card accounts had payments 30 or more days past due, up from 4.76% in the first quarter. "That was alarming," according to Bankrate.com Senior Financial Analyst Greg McBride. "Consumers are feeling some strain."
The credit union delinquency rate, however, was half that of banks at the end of the second quarter, 1.87%, a fact CUNA economists attributed to the fact credit union cards generally carry lower APRs than do bank cards. In fact, credit union card delinquencies are actually down slightly from 1.89% at year-end 2004. But CU cards with variable APRs will price upward as the various indexes rise.
McBride said when consumers rely on debt and not their savings to finance their lifestyles it inevitably leads to problems, whether they live on the edge of their finances or in a hurricane-damaged state, Just as is the case with home equity lending, experts told The Credit Union Journal they are expecting more problems with credit card payments, although it's a little too early to make a final judgment.
"I think it would behoove us all to be cautious," said James B. Smith, the president of Singing River FCU in Moss Point, Miss., which was hit hard by Hurricane Katrina. "We don't know what the economy is going to do."
Smith said he hasn't seen an increase in delinquencies, but Singing River can already see residents are maxing out their credit cards as they pay for everyday items with credit. Smith said he extended card payments for 60 days to help his members looking to rebuild their own lives to get through day to day.
Meanwhile, analysts are advising credit unions to be practical and flexible when dealing with members and to stay alert to developing problems. If a member gets squeezed by a combination of increasing interest rates, higher gas prices and possibly repairing a home from Katrina or Rita, the choice is going to be easy.
If only $100 is left at the end of the month and its time to buy food and shoes for the kids, credit unions can quickly figure out what to expect.
"The first thing that goes delinquent is the credit card," said NAFCU Senior Economist Jeff Taylor.
One Odd Finding
CUNA Vice President of Economics and Statistics Mike Schenk said the ABA report was a bit odd, as the number of delinquent payments was decidedly increased, but the dollar amount of each account was actually rather small. He expects delinquencies to stay on an upswing, but said he's still looking at the trends of the economy.
"I can see those things moving in opposite directions," Schenk said. "It's good to alert people. They should be careful."
In Broomall, Penn., Franklin Mint FCU Vice President Allan Stevens said his credit union is unaware of any rising delinquencies in its card portfolio, but it also sold that portfolio to MBNA, although it retains the servicing. Stevens said the CU will continue with its efforts in financial education, communication and simply working with members to stave off delinquencies of any sort. Taking an active role in getting member and staff feedback will help with member credit problems, he said.
"You can't go under a rock and hide," he said.