Despite widely reported increases in credit card chargeoffs, delinquencies on those loans actually declined in the third quarter, according to a report the American Bankers Association released Wednesday.
The percentage of card accounts that were more than 30 days delinquent fell 34 basis points from the previous quarter, to 4.2%, the Washington trade group said. The rate was the lowest reported by the ABA for card delinquencies since the third quarter of 2007.
Several major issuers reported increases in third-quarter chargeoff rates, and most of them have projected that the losses would continue to rise this year.
James Chessen, the ABA's chief economist, said in an interview Wednesday that the decline in delinquencies did not necessarily contradict that trend. "When you see chargeoffs being aggressive, you may see decreases in delinquencies, because you're recording as losses a greater part of the loans that are troubled," he said.
The third-quarter decline in delinquencies reflects "an aggressive effort by banks to recover those losses," tighten underwriting standards, and improve the management of their existing accounts, Mr. Chessen said. "I don't expect to see further declines in the bank card delinquencies" or in chargeoffs. "With the job picture worsening, we'll see bank card delinquencies [and chargeoffs] rise, and we'll see the dollars on those accounts rise."
He also attributed the decline in delinquencies to a shift in consumers' priorities when it comes to loans. Consumers have increasingly made a decision "over the past year to make sure they're meeting their credit card payments, even if they're late on mortgage or auto loan payments."
(Bankers have discussed this shift with the ABA, according to Mr. Chessen, though the trade group does not track consumer data on loan prioritization.)
Troubled or unemployed cardholders may be defaulting more quickly in the current recession, but more stable cardholders have reined in their spending and lowered the payments they make on their cards, he said.
"Credit cards have the big advantage of being flexible and allowing the borrower to adjust the amount of payments they're making toward the debt," and as a result, "people may be paying less on their credit cards than they did in previous months," Mr. Chessen said. "That's a huge advantage over the fixed payments on mortgages or auto loans."
Delinquencies rose for most other types of consumer loans, and he said he expected that to continue into this year.
The ABA's composite ratio, which tracks eight types of installment loans, including auto, personal, and closed-end home equity loans (but not cards), rose 22 basis points from the second quarter, to 2.9% of all accounts on a seasonally adjusted basis — its highest level since 1980.
The delinquency rate for home equity lines of credit rose 7 basis points, to 1.15%. The rate for "indirect" auto loans (those offered through car dealers or other third parties) rose 18 basis points, to 3.25%. Both rates were record highs.
The ABA began tracking delinquencies of home equity lines in 1987 and of indirect auto loans, which account for 90% of all auto loans, in 1980.
The delinquency rate for auto loans offered directly by banks fell 6 basis points, to 1.71%. (With cards, it was the only other category to report a decrease in delinquent accounts.) Mr. Chessen said that such "direct" auto loans generally perform better than those offered through third parties because "the people that are going directly to the bank typically already have a relationship with that bank."
