Soaring U.S. unemployment and a shrinking economy drove delinquencies on credit card debt to an all-time high in the first quarter as a record number of cash-strapped consumers fell behind on their bills.
Fallout from a still deteriorating housing market caused the rate of consumer loan payments at least 30 days late to rise to 3.23 percent in the January-to-March period from 3.22 percent in the 2008 fourth quarter, the American Bankers Association said.
Delinquencies were the highest since the ABA began tracking the data in 1974. Late payments on home equity borrowings set records, rising to 3.52 percent from 3.03 percent on loans and to 1.89 percent from 1.46 percent on lines of credit.
The overall delinquency rate actually understates consumer pain because it excludes bank-issued credit cards, where credit deterioration was severe.
Delinquencies on the value of all card debt soared to a record 6.60 percent from 5.52 percent in the fourth quarter. The rate of delinquent accounts rose to 4.75 percent from 4.52 percent, near the record 4.81 percent in the spring of 2005.
"The biggest driver is job losses," ABA Chief Economist James Chessen said in an interview. "When people lose their jobs or work fewer hours, it makes it that much harder to meet their obligations. Unfortunately, we're going to see higher job losses in the next year, and I expect elevated delinquencies."
The ABA represents most large U.S. banks and credit card companies. Tuesday's data are a bad sign for them as they prepare to report second-quarter results starting next week.
While improved capital markets may boost the bottom lines of some, analysts expect lenders such as Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Capital One Financial Corp. and American Express Co. to suffer higher credit losses, especially in cards.
Bridge to employment
Borrowers are struggling as the nation's jobless rate sits at a 26-year high of 9.5 percent, with 6.5 million jobs having disappeared since the recession began in December 2007. The Obama administration expects the unemployment rate to hit double digits before declining.
U.S. consumers ended March with $939.6 billion of revolving credit outstanding, a rough approximation of credit card debt, according to Federal Reserve data.
"Consumers tend to rely on credit cards as a bridge to cover their daily needs until they find new jobs," Chessen said. "It's taking longer to find those jobs."
Meanwhile, home prices are down 32.6 percent from their peak in 2006, according to the Standard & Poor's/Case-Shiller Home Price Indices of 20 large metropolitan areas.
The ABA in June said it expects the recession to end this quarter, despite rising unemployment.
The overall ABA delinquency rate includes direct auto, indirect auto, closed-end home equity, home improvement, marine, mobile home, personal, and recreational vehicle loans.
Delinquencies rose to 3.01 percent from 2.03 percent on direct auto loans, to 3.70 percent from 2.96 percent on mobile home loans, to 3.47 percent from 2.88 percent on personal loans, and to 1.52 percent from 1.38 percent on recreational vehicle loans.
They fell to 3.42 percent from 3.53 percent on auto loans made through dealers, to 2.04 percent from 2.35 percent on marine loans, and to 1.46 percent from 1.75 percent on property improvement loans.