Consumer loan picture improves across the board in 4th quarter

Bank customer fills out a mortgage application.
(Steven E. Frischling / Bloomberg)

Delinquencies are lower in all 11 consumer loan categories tracked by the American Bankers Assn., a rare occurrence that reflects the nation’s improving jobs picture and the progress that consumers and banks have made in cleaning up their respective financial problems.

During last year’s fourth quarter, borrowers were current more often than they were in the third quarter on home equity loans and lines of credit, property-improvement loans and loans for cars, boats and mobile homes, the bankers’ trade group said in a report Thursday.

Delinquencies on bank-issued credit cards amounted to 3.3% of all accounts, down from a peak of 5% in the second quarter of 2009. The decline reflects banks writing off some debts as uncollectable and more consumers paying on time.

The last time the American Bankers Assn. survey showed loan performance better across the board was in the last quarter of 2004, said James Chessen, the trade group’s chief economist.


“It’s always a bit shocking when every single category shows a decline in delinquencies,” Chessen said in an interview. “It’s extremely rare.”

The bankers group has conducted the quarterly survey since the 1970s. The latest report classified as delinquent any loan that was in arrears for at least one month.

Consumers are reaping the benefits of several years spent hunkered down and paying debts, helped by lower interest rates engineered by the Federal Reserve.

“They’re managing the debt they do have much better, and the amount of debt as a portion of income is going down,” Chessen said.


Banks are in better shape and more willing to lend, the trade group said. Credit monitoring firmsEquifax Inc.andMoody’sAnalytics Inc. said in a recent joint report on consumer lending that subprime credit card and car loans — made to people with poor or no credit — are quickly increasing.

Chessen said that trend reflected confidence on the part of bankers that the economy would continue to improve.

The biggest problems involve housing-related loans, where slowly declining delinquencies still are high, as well as gasoline prices, Chessen said.

“The more money you pull out of your pocket and put into a gas tank, the less you have for paying your debts and spending on other things,” he said.


The most important factor is whether the economy generates jobs, he said.

Initial filings for unemployment benefits are at their lowest levels in nearly four years, and the nation’s gross domestic product, a key measure of economic growth, rose at an annualized rate of 3% in the fourth quarter.

“The connection is obvious: When someone loses a job, it’s much more difficult for them to meet their obligations,” Chessen said. “If we continue to see steady growth in jobs, we’ll see continued improvement” on the loan front.