Magazine article American Banker

More Cardholders Delinquent but Carry Less Debt

Magazine article American Banker

More Cardholders Delinquent but Carry Less Debt

Article excerpt

The American Bankers Association, which on Thursday released its quarterly consumer credit delinquency data, says it is not at all bad that the number of people 30 days or more past due on their credit card bills inched up a bit -- at least the amount of delinquent debt fell, meaning the average debtor is less burdened.

That said, the percentage of credit card accounts that were delinquent in the second quarter was the second-highest that the ABA has ever reported: 3.91% of all accounts, versus 3.88% in the preceding two quarters. The record was 3.93% in the second quarter of 2001.

James Chessen, the group's chief economist, noted that the quarter-over-quarter increase in delinquencies was just 3 basis points. "Statistically, it is not a big rise at all," he said. "If you look at the dollars associated with those accounts, the balances dropped sharply."

Credit card balances 30 days or more past due dropped 42 basis points, to 4.08% of loans outstanding, the lowest percentage since the third quarter of 2000. "That is a pattern we like to see," Mr. Chessen said.

Two factors helped explain the drop in the value of delinquent card accounts, he said. One was mortgage refinancings, which are still a brisk business because of the interest rate climate and which give consumers more ready cash to pay their card bills.

"There is a lot of cash-out refinancing, taking out more than the existing mortgage and using that to consolidate debts, or buy a car," Mr. Chessen said. "It makes sense -- you can take the higher-interest debt on credit cards and roll it into mortgage debt at lower interest rates over a longer period of time."

The other factor was that banks were more aggressive in charging off bad consumer loans, Mr. Chessen said. According to reports he cited from the Federal Deposit Insurance Corp., credit card chargeoffs in the second quarter rose to 6. …

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