DELINQUENCIES INCREASING, WHO CAN WE BLAME?

According to the American Bankers Association, delinquent credit card accounts are at record highs.  More people than ever before are falling behind on their card payments.  They’re also struggling with home equity loans and other some other debts.

Obviously, that’s bad news.  And what do we like to do when we get bad news about the state of credit card debt?  We like to blame the credit card companies. It’s almost instinctive.  We love our cards but we love to hate the banks that issue them even more.

Not this time.  The card companies may not have clean hands, but their not the primary source of the this spike in delinquencies past the extent to which they’ve contributed to the overall economic crisis with which we’re all battling. That’s right, I don’t know if I can get through this whole post without criticizing aspects of the policies implemented by card companies, but I’m not about to lay blame for the delinquency upswing purely on their front porches.

IT’S THE ECONOMY, STUPID

President Clinton got a lot of mileage out of campaigning on the “it’s the economy, stupid” mantra.  We’re going to borrow the language to explain why delinquencies are up.  The ABA’s Chief Economist, James Chessen, does a very nice job of explaining what’s spurring the repayment problems:

“The problems now are the cumulative effect of the economy and job losses… Every single month there are jobs being lost and when income falls it makes it very difficult for consumers to meet debt obligations…  Six consecutive quarters of job losses have taken their toll… It’s stunning what’s happened. There’s a lot of pain out there as people try to make ends meet.”

That pain shows up in the just-released numbers.  The ABA releases a “composite ratio” that tracks a collection of eight different types of installment loans.  The delinquency number hopped to a high of 3.35% for the second quarter of 2009.  That’s higher than the first quarter’s already high 3.23%

The number would be even worse if it wasn’t for the fact that a few of the eight categories actually posted improvements.  Car loans are a little less likely to be delinquent these days.  People seem to be doing a better job of keeping up with their mobile home payments than their credit card bills, too.

BRINGING DOWN THE COMPOSITE NUMBER

What will bring that composite number down?  What will decrease the credit card payment delinquencies?

The ABA’s Chessen thinks he knows just what it will take to help people make those payments.  Money and jobs.  He says, “The picture won’t change until the labor market improves and the economy picks up steam… That’s going to take time.”

He’s probably right on both fronts.  It makes sense that more jobs and money will result in more payments making their way to the various credit card billing addresses in Wilmington.  It also looks like we’re still a long way from knocking on the door of genuine economic recovery.  As Reuters reports:

The unemployment rate rose to 9.7 percent in August, the highest figure since 1983, and is expected to remain high into next year even as the economy recovers.

If you think the second quarter numbers were nasty, just wait of Q3.  Our economy continues to shed jobs and the credit card companies aren’t doing consumers any favors with their account closures and interest rate hikes.  I’m willing to wager the remaining room on my Discover card that the percentages on credit cards is going to look even worse the next time we hear from Chessen and Co.  Some of the other components of the composite number might be able to roll it back a bit, but the credit card numbers won’t be pretty.