For the second consecutive quarter, consumer credit quality turned downward in the first three months of 1995, as indicated by the American Bankers Association's delinquency index.

According to the seasonally adjusted composite index, covering eight types of closed-end consumer loans, 1.82% of participating ABA banks' accounts at the end of the first quarter were at least 30 days past due.

The ratio was 8 basis points higher than it was a year ago and 10 basis points higher than at yearend 1994.

The index had not risen in back-to-back periods since the second and third quarters of 1991, the ABA said this week.

Also for the second straight quarter, delinquencies in credit card loans, which are not included in the composite, moved up at a faster rate than the composite. Credit card delinquencies at March 31 reached 3.18% of accounts, up from 2.93% at yearend and 2.54% at the comparable point a year earlier.

"Even with these two increases (the composite) is still below all of the delinquency rates of the '80s, with the exception of one quarter," noted James Chessen, the ABA's chief economist.

The delinquency rate for the composite surged to 2.88% in the third quarter of 1989. The highest delinquency rate reported by the ABA for credit cards was 3.34% in the first quarter of 1991.

Moody's Investors Service Inc. recently said the delinquency rate on credit card receivables in securitized pools, measured as a percentage of balances, dipped in the first quarter to 4.41% from 5.12% in 1994, but up slightly from 4.34% in the fourth quarter.

Edward Bankole, the Moody's analyst responsible for its credit card index, said credit quality, in terms of chargeoffs and delinquency rates, improved again in the first quarter compared to the same quarter of 1994. However, the pace of improvement slowed sharply year to year, he said, to under 10% in March from over 11% monthly since February 1993.

Part of the reason for the positive performance is the record number of credit card accounts booked in 1994, Mr. Bankole said. Meanwhile, the dollar amount of receivables continues to grow at double-digit rates.

The components of the ABA index - direct and indirect auto, home equity, personal, recreational vehicle, marine, mobile home, and property improvement loans - showed mixed results.

For example, lateness on direct auto loans dipped a basis point, to 1.45%, but indirect auto loan payments jumped from 1.65% to 1.76%. The lowest rate was in open-end home equity lines of credit, which moved from 0.63% to 0.70%.

Mr. Chessen said the numbers are a caution light for bankers. "Given the weakening economy and consumers' increased uncertainties about jobs and incomes, moderate increases in consumer credit delinquencies are expected throughout the remainder of the year," he said.

Indeed, lenders should watch second- and third-quarter numbers carefully to determine the effect of a sharply slowing economy, said James Annable, chief economist for First Chicago Corp. The first-quarter growth rate was 2.75%, he pointed out, while the second-quarter rate will be closer to zero.

"The stress comes on households and their debt payment capability when you have a slowdown in the economy," Mr. Annable said.

At the same time, consumers continue to take out loans. Consumer installment credit, as reported by the Federal Reserve Board, rose at a seasonally adjusted annual rate of 14.1% in April, or $11 billion - the 29th consecutive monthly gain.

Revolving credit, which includes department store and bank card credit, expanded at a rate of 21.8%, or $6.5 billion. Overall consumer installment credit totaled $947.7 billion (not seasonally adjusted) at the end of April. Banking institutions held 47% of that credit, the ABA said.

Mr. Chessen said he expected the rate of delinquencies for bank cards to increase some. "But it worries me that unsecured lines are the first place people turn when they are in trouble," he said. "I think it is time that we pause in the credit card market and assess how quickly we want to extend credit."

Lisa Fickenscher contributed to this article.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.