Late payments for most classes of consumer loans dropped in the fourth quarter ended Dec. 31, the second consecutive quarterly decline, according to a survey by the American Bankers Association.
"Clearly, consumers are shoring up their finances and banks are putting losses behind them," James Chessen, ABA's chief economist, said in a statement. "Overall, there is a prudent approach to credit."
Loans 30 days or more past due fell in proportion to overall loans in eight of 11 categories tracked by the ABA's quarterly Consumer Credit Delinquency Bulletin. But housing-related loans showed mixed results, indicating the housing market still lags in the spreading economic recovery.
Delinquencies on credit cards fell substantially. Consumers were late on 4.39% of their card payments, down from 4.77% the previous quarter. Improvement also occurred on home equity lines of credit, where delinquent loans made up 2.04% of the money lent - down from 2.12%. Delinquencies on auto loans from dealers held steady at 3.15%, and delinquency rates rose for home equity loans and non-card revolving loans.
Many economists believe that modest job gains and improved consumer spending in recent weeks are signs of new life in the economy. The improvement in the ABA indexes is in line with what major lenders have recently reported. Discover Financial Services, for example, said last month that delinquencies on its credit cards declined for a fifth month in a row in February.
The continued decline in delinquencies is a good sign because they are a leading indicator of future chargeoffs, according to Sanjay Sakhrani, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., reports American Banker, a Collections & Credit Risk sister publication.
"You could actually see a leveling off if not the beginning of a decline in chargeoffs," in the second quarter, Sakhrani adds.
The improvement also may be a reflection of stricter underwriting standards that lenders have adopted, John Stilmar, an analyst at SunTrust Robinson Humphrey, says.
"Only people with good credit are getting credit," while "you're burning off some of those more credit-challenged borrowers" who got loans when standards were looser.
Most analysts agreed that the improvement should continue through the first half of this year, as consumers use their tax rebates to pay down debt.
But even among loan types where delinquencies fell, they remained well above historical averages. A composite index of delinquencies across all categories fell to 3.19% from 3.23% for the quarter. Before the fourth quarter of 2008, the number had never exceeded 2.9% in the 20 years for which data are available.
