By Mark Huffman
ConsumerAffairs.com
July 7, 2009
Times are tough, and the state of the economy is showing up in ballooning delinquencies on consumer loans.
The American Bankers Association reports its composite ratio, which tracks delinquencies in eight closed-end installment loan categories, rose to 3.23 percent of all accounts (seasonally adjusted) compared to 3.22 percent of all accounts in the previous quarter.
The delinquent balances on those accounts also rose from 3.16 percent to 3.35 percent of total balances due (not seasonally adjusted). The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
"The number one driver of delinquencies is job loss," said ABA Chief Economist James Chessen. "When people lose their jobs, they cant pay their bills. Delinquencies won't improve until companies start hiring again and we see a significant economic turnaround."
More than two million Americans lost their jobs in the first three months of the year with more than 6 million jobs lost since the recession began.
Chessen said the unemployed may be using bank cards to bridge a temporary income gap, especially with less home equity to fall back on as housing prices continue to fall. Bank card delinquencies rose 23 basis points to 4.75 percent of all accounts, compared to 4.52 percent in the previous quarter. However, the balances on those delinquent accounts rose dramatically, up 108 basis points to 6.60 percent of the value of all outstanding bank card debt, marking a new record.
While unemployment undoubtedly plays a major role in loan delinquencies, the unprecedented campaign by major banks to drastically raise credit card rates and minimum payments may make an already bad situation much worse.
As has been previously reported, Chase last month began notifying hundreds of thousands of consumers with its lowest rate cards that their minimum payments are being raised from two percent of the balance each month to five percent. Those who transferred large balances from their high rate cards to take advantage of the low rate now face a huge increase in monthly payments.
"This will increase my payment from approx. $600 a month to $1400 a month," Alan, of Provo, ND, told ConsumerAffairs.com.
Banks such as Bank of America and Capital One have lately been notifying customers that their credit card rates are going up.
"My interest went up from 8.9 to 17.9 percent," Kim, of Randolph, MA, told ConsumerAffairs.com. "I was never notified. Whet I called, ,of course I was told a letter went out. I haven't made a purchase for a couple of months. How can they raise my interest on older purchases?"
Even if they manage to remain employed, these consumers, and others like them, may have difficulty keeping up their payments.
