Car Loan, Credit Card Delinquencies Reach New Peaks
Apr 24th, 2019 @ 9:22 PM by Amber Nelson
U.S. consumers are falling behind on their credit card bills and car loans at higher rates than have been seen in almost a decade, according to data from the American Bankers Association, but that may be more of a return to historical norms rather than a sign of economic doom.
After falling in 2017, in the 2018 fourth quarter, the share of bank-issued credit card accounts that were delinquent by at least 30 days rose to 3.22%, the highest rate since 2011. And the delinquency rate on indirect auto loans – those made through car dealers – rose to 2.08%, a new high since 2012.
Even though an increase in delinquencies seems like cause for alarm, the ABA sees it as part of a normal financial pattern. “The delinquency trends we’re seeing are typical of what happens at this stage in the business cycle, particularly as it relates to auto and credit card delinquencies,” said James Chessen, ABA chief economist. “Consumers’ financial health overall remains solid, supported by a strong job market and continued wage growth,” he added.
After the Great Recession, many banks charged off the bad loans on their books and took on only more credit-worthy borrowers for a time. That led to historically-low delinquency rates that have been slowly rising as the economy has improved and lenders have loosened their credit qualifications.
The same is true of the auto industry where lenders made fewer subprime loans for a period during the Recession. Since then in-house auto lenders have relaxed their credit standards and higher delinquencies are the natural by-product.
The fourth quarter increase in late-payments could also be seasonal, as rates often increase in December, January and February. Even in years where delinquencies fall or are steady for most of the year, they usually tick up due to end-of-the year, holiday spending.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.