Help for Delinquent Consumers

Consumer delinquency rates in the third quarter hit record highs across the three key categories of home equity loans, home equity lines of credit and bank cards, the American Bankers Association said Thursday.

The ABA’s Consumer Credit Delinquency Bulletin defines delinquency as a late payment that is 30 days or more overdue.

Bank card delinquencies rose 26 basis points to a record 5.01 percent of all accounts. Record delinquency rates occurred in home equity loans - up 49 basis points to 4.01 percent of all accounts – and in home equity lines of credit – up three basis points to 1.92 percent of all accounts.

The association’s composite ratio, which tracks eight closed-end, installment loan categories, also hit a record high at 3.35 percent of all accounts (seasonally adjusted), compared to 3.23 percent of all accounts in the second quarter.

A closed-end loan provides a fixed amount of money with a fixed repayment period and regularly scheduled payments.

ABA Chief Economist James Chessen said in a statement that the high consumer credit delinquency rates represent the cumulative effect of the longest recession since the Great Depression.

“Six consecutive quarters of job losses have taken their toll,” Chessen said. “With jobs lost and work hours cut, it doesn’t take long for the financial pressure to become overwhelming. Falling behind on debt payments is an unfortunate side effect of high unemployment and a frozen job market. The picture won’t change until the labor market improves and the economy picks up steam. This is going to take time.”

Auto loans also saw payment declines, however, there was some improvement in the third quarter.

Direct auto loan delinquencies fell 55 basis points to 2.46 percent of all accounts and indirect auto loan delinquencies – which are on loans arranged through auto dealers - dropped to 3.26 percent of all accounts from 3.42 percent in the previous quarter.

“The good news is that consumers are clearly being more cautious by saving more, spending less and making great efforts to repair their balance sheets,” Chessen said.

A new survey of public views on the economy, released this week, showed that 57 percent of Americans are close to someone who has been laid off, 61 percent report that someone close to them has had their hours or pay cut and 44 percent of all households have experienced one or the other during the past year.

The "Tracking the Recovery" survey was conducted among 802 registered voters nationwide from Sept. 21 to 23 by Hart Research Associates for the Economic Policy Institute, a think tank in Washington, D.C. that researches the impact of economic trends and policies on working people in the U.S. and worldwide.

Donald Klepper-Smith, chief economist and director of research at DataCore Partners LLC in New Haven, said that in the current economic environment, every dollar counts and every job counts.

“As unemployment rates rise and incomes remain stagnant, I think we’re going to continue to see increases in non-performing loans,” Klepper-Smith said.

Here are some tips from the ABA on managing debt:

For homeowners having trouble paying their mortgage, the American Bankers Association "strongly recommends" you consult HOPE NOW, an initiative coordinated between counselors, investors and lenders to help homeowners in distress. Call 1-888-995-HOPE.

For others who are having trouble paying down debts, ABA advises taking action -- sooner rather than later -- to solve debt problems:

· Talk with creditors – the sooner you talk to them, the more options you have;
· Don’t charge more purchases until your problems are solved;
· Avoid bankruptcy – it’s a short-term solution with long-term consequences; and
· Contact Consumer Credit Counseling Service at 1-800-388-2227.

For more information on budgeting, saving and managing credit, visit the ABA Education Foundation’s consumer web page.