The credit card delinquency trend turned positive in the first quarter as banks tightened their lending standards, the American Bankers Association said Tuesday.
Although the proportion of past-due card accounts remains high by historical standards, the ABA's industry benchmark of 3.51% was almost back down to the 3.48% reading of last year's third quarter.
A spike in the card delinquency rate to a record 3.72% at yearend, along with deterioration in other types of consumer credit, alarmed many bankers and economists.
But even as the credit card number improved, the ABA's composite index for several types of closed-end loans worsened, to 2.47% in the first quarter from 2.34% in the December quarter and 2.14% as of March 1996.
"It may have stopped raining, but there are still clouds in the sky," said James Chessen, chief economist at the ABA, which uses a membership survey to come up with its delinquency readings. An account is considered delinquent when a payment is 30 days past due.
The Mortgage Bankers Association of America said last week that home loans 30 to 59 days past due rose two quarters in a row, to 3.11% as of March.
Overdue accounts in credit cards, the biggest asset category covered in the ABA survey, have been alternately falling and rising each quarter since the second of 1996. Before that, the statistic rose seven straight times, from 2.44% in the 1994 third quarter to 3.66% at midyear 1996.
Those movements have been pretty much in parallel with delinquent accounts as a percentage of borrowed dollars. They fell a slight 2 basis points in the latest period, to 5.43%, after an almost uninterrupted rise from 2.90% in the third quarter of 1994 to 5.45% at yearend 1996.
Reflected in the first quarter's rise in the composite index on closed- end loans, which do not include credit cards, were increases in direct auto lending (to 2.10% of accounts past due from 2.03% in the December quarter) and indirect auto lending (to 2.55% from 2.36%).
In terms of dollars, the composite ratio improved to 1.95% past due from 2.13% the previous quarter.
Delinquent home equity loans fell to 1.38% from 1.42%, but the rate on home equity lines of credit jumped to 1.20% from 1.04%. Before the last quarter of 1996, the ABA home equity line statistic had never been above 1.00%.
"I always like to be hopeful, but I am realistic enough to know that we are probably still in a period where the delinquency numbers are going to bounce up and down," said Mr. Chessen of the ABA.
"The first quarter was good for the economy, nearly a million jobs were created, and personal income rose 1.5%," he said. But given the number of borrowers who are having trouble meeting their obligations, he said it is too early to celebrate.
The Administrative Office of the U.S. Courts reported that 1.19 million people filed for personal bankruptcy in the 12 months ending March 31.
Economists said the measurable improvements in credit quality may be due to the strong economy and gains in the stock market, which help raise consumer confidence.
But Irving Levine, chief executive officer of Renaissance BankCard Services in Portland, Ore., said the changes may be also be seasonal. Consumers tend to spend less and pay down debt following holiday periods.
Mr. Levine said, "The people in the industry that I have talked to suggest that although a few companies are doing better with their delinquencies, probably as many or even more are still struggling."
"The market forces are policing themselves," said Sung Won Sohn, senior vice president and chief economist at Norwest Corp. "Both lenders and borrowers have become a lot more cautious about extending and using credit. ... . Like in any marriage, both parties have to worry."
He pointed to the anomaly that credit problems surged amid a healthy economy, probably a result of heavier dependence on credit cards.
One positive sign is that the ratio of debt to disposable income has nudged down a little, said Mr. Chessen.
"We are still on a bumpy road and the tendency of lenders is to go very slowly," said Mr. Chessen.
"We have to realize that this is an extraordinarily competitive market with nearly 7,000 lenders," he said, "and there are many lenders who are willing to take greater risks than others."
In May, the Federal Reserve reported that nearly 50% of banks tightened credit standards for new credit card accounts, while 40% had lowered credit limits on existing accounts.
Mr. Chessen said that while the banking industry as a whole tightened credit criteria, banks actually lost 2% of market share over the last year to nonbank lenders.
Mr. Levin said the growth in such categories as auto and home equity suggests they are going to run into the same kinds of problems that credit cards had.
But Mr. Sohn, said, "I'm hoping that the delinquency rate has at least reached a plateau."
The concern is that the economy will slow and more people will be thrown out of work. Combining those factors with heavy consumer debt could push the delinquency rate up.
"Both lenders and consumers better have their umbrella handy," said Mr. Chessen, returning to the rain metaphor. "The worst may not be over."