Magazine article American Banker

Falling Gas Prices Help Consumers Pay Their Debts, ABA Says

Magazine article American Banker

Falling Gas Prices Help Consumers Pay Their Debts, ABA Says

Article excerpt

Byline: Kevin Wack

The sharp nationwide drop in gas prices is allowing more U.S. consumers to stay current on their debts, according to a new report from the American Bankers Association.

During the third quarter of 2014, delinquency rates fell in seven of the 11 consumer loan categories tracked in the report, continuing a broad trend of improvement that dates back several years. Also in the third quarter, gas prices began a decline that has since accelerated.

"The fact that gas prices are way down has to be a contributing factor in improving delinquency trends," said James Chessen, the ABA's chief economist. "The less money you have to put into your gas tank, the more money you have to do other things, and one of those is to pay back your debts."

Among the loan types where delinquency rates fell: car loans arranged through automobile dealers, personal loans and property-improvement loans. The delinquency rate for an index of eight closed-end loan categories dropped from 1.57% in the second quarter to a record low of 1.51%.

The delinquency rate for bank-issued credit card loans rose during the third quarter from 2.43% to 2.51%. Still, the credit card delinquency rate remained below the levels it reached in 2011 and 2012.

Every one-cent-per-gallon decline in gas prices saves U.S. consumers about $1 billion, according to the ABA. Retail gas prices reached a high of $3.77 in June before falling to $3.38 in October, according to the U.S. Department of Energy. By the first week of January, prices had dropped all the way to $2.31 per gallon.

That's good news for banks that are benefiting from the relatively low percentage of consumer loans going bad in the aftermath of the Great Recession. Still, Chessen believes that unusually low gas prices are simply delaying the eventual return to a more normal credit environment. …

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