April 2, 2009 / 12:40 PM / 10 years ago

Consumer loan delinquencies highest on record

NEW YORK (Reuters) - More U.S. consumers have fallen behind on loan payments than ever before, and the problem may worsen as millions more find themselves out of a job, a study released Thursday shows.

According to the American Bankers Association, which represents most large U.S. banks and credit card companies, the percentage of consumer loans at least 30 days late rose to a seasonally adjusted 3.22 percent in the October-to-December period from 2.9 percent in the prior quarter.

The ABA said the fourth-quarter rate was the highest since it began tracking the data in 1974, with delinquencies rising in nearly every category. It said these credit trends are unlikely to improve before 2010.

“Job losses have really hurt the economy and will continue to inflict pain for several months,” James Chessen, the ABA’s chief economist, said in an interview. “The greater the losses are, the more severe an impact it has on all credit markets.”

The ABA study covers direct auto, indirect auto, closed-end home equity, home improvement, marine, mobile home, personal, and recreational vehicle loans. It excludes bank credit card and education loans.

A report issued Wednesday by ADP Employer Services said U.S. private employers shed a record 742,000 jobs in March, pushing year-to-date losses above 2 million.

Economists polled by Reuters expect the Labor Department to say on Friday that the U.S. jobless rate rose to 8.5 percent in March, a level not seen since 1983, from February’s 8.1 percent.

“We’ve seen delinquency rates across the board in consumer loans go up, and continue to go up,” Bank of America Corp (BAC.N) Chief Executive Kenneth Lewis said Thursday on CNBC television. But he said “early” delinquencies, or payments missed shortly after loans are taken out, have begun to abate in a “smattering” of products at the largest U.S. bank.


According to the ABA, the late-payment rate on auto loans made through dealers rose to a record 3.53 percent in the fourth quarter from the third quarter’s 3.25 percent, while late payments on home equity lines of credit rose to a record 1.46 percent from 1.15 percent.

The delinquency rate rose to 2.03 percent from 1.71 percent on direct auto loans, to 3.03 percent from 2.63 percent on home equity loans, to 2.35 percent from 1.82 percent on marine loans, and to 2.88 percent from 2.69 percent on personal loans.

Other increases were to 1.75 percent from 1.63 percent on property improvement loans, and to 1.38 percent from 1.27 percent on recreational vehicle loans. In contrast, mobile home delinquencies fell to 2.96 percent from 3.08 percent.

The ABA said the delinquency rate on credit cards rose to 4.52 percent from 4.20 percent but remained only slightly above the 4.47 percent average over the last four years.

“Underwriting standards on credit cards have been very consistent over time and didn’t follow the more exotic trends we saw in mortgages,” Chessen said. “And unlike loans such as home loans and car loans that have fixed payments every month, credit card loans let cardholders adjust their payments.”

Still, major card issuers face mounting credit losses. JPMorgan Chase & Co (JPM.N) Chief Executive Jamie Dimon told shareholders of the second-largest U.S. bank this week that “we do not expect to make any money” in credit cards this year.

Chessen said consumers’ efforts to build financial cushions and limit how much new debt they take on “should really pay dividends” in 2010 and 2011. He also said lower gasoline prices, a surge in mortgage refinancings and lower federal tax withholding could ease pressure on consumers’ wallets.

Editing by John Wallace and Steve Orlofsky

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