The gradual improvement in Americans' financial situations has led to a record low level of delinquency rates.

The rate of delinquencies on eight types of installment loans fell to 1.57% in the second quarter, down from 1.63% in the previous quarter, according to the American Bankers Association's Consumer Credit Delinquency Bulletin.

The figure was the lowest since the ABA began producing the bulletin in the early 1970s. The previous low was1.59% in the fourth quarter of last year.

Also, delinquencies on bank-issued credit cards fell to 2.43% from 2.44%

A range of economic factors has led to better financial footing for consumers, which is reflected in the improved delinquency rate, said James Chessen, the ABA's chief economist.

"What really helps drive improvements in delinquencies are the jobs numbers," Chessen said in an interview. "The better the incomes they have, the greater the capacity consumers have to meet debt obligations."

The U.S. unemployment rate fell to a six-year low of 5.9% last month, as 248,000 jobs were created, according to the Labor Department. The 5.9% rate was the lowest level since July 2008, and the decline in the unemployment rate exceeded all forecasts, many of which pegged the rate to remain at 6.1%, according to a Bloomberg survey.

The ABA's quarterly survey tracks 11 different types of closed-end and open-end loans. The report saw improvements in nine of those 11 categories, which is also an encouraging sign, Chessen said.

"It reflects a level of care on the part of consumers as well as a conservative approach on the part of banks," Chessen said. "Banks are being selective in the types of credit they are willing to extend."

The only categories in which there was a rise in delinquency rates were mobile home loans, which rose to 3.56% from 3.37%; and non-card revolving loans, which rose to 1.92% from 1.79%.

Loans are delinquent if a borrower's payment is at least 30 days past due, according to the ABA's definition. The ABA report's rates are seasonally adjusted.

With the improving indicators, banks will be more willing to extend credit, which will further juice the economy, Chessen said. Some may worry that will lead to weakened underwriting standards, but the trend simply reflects the broader economic picture, he said.

"In an expanding economy, the risks of lending are less," Chessen said. "More people qualify because their financial profile is better."

The numbers also show that consumers are using credit cards less as a way to finance purchases, and more as a payment vehicle, the ABA said in the report. That may eat into banks' short-term fee income, but it bodes well in the longer term for loan growth, Chessen said.

Delinquency rates rose in all three of the home-lending categories that the ABA tracks, as home prices have recently increased. Those loan categories are home equity lines of credit, home equity loans and property improvement loans.

"Home-related delinquencies are moving in the right direction, mirroring the slow recovery in housing," Chessen said in a news release.

Delinquencies also fell in one of the most active lending areas for banks, automobile loans. Direct auto loan delinquencies fell to 0.72% from 0.76%; and indirect auto loan delinquencies fell to 1.55% from 1.74%.

 

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