Consumer lending picture best in eight years

Consumers are making more of a dent in delinquent debt, says new report. Image: kainr/Flickr/CC BY

Continued evidence of economic growth appeared last week in the form of a report on consumer lending for the last quarter of 2011. The statistics paint a rosier picture of the troubled industry than has been seen since 2004.

Improvement in all categories

According to Thursday’s report by the American Banker’s Association, consumers are paying their debts in a more timely manner in all 11 consumer loan categories studied by the report.

The ABA’s chief economist, James Chessen, said the across-the-board improvement is almost unheard of.

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

The ABA has been conducting the annual survey since the 1970s. It defines “delinquent” as any loan that is at least one month behind in payments.

Delinquent, but improving

Credit card and other delinquencies, according to the report, are still extremely common. But there was a marked improvement over the previous quarter in every category, including home equity loans, auto loans, boat loans and property-improvement loans.

Chessen said that the American consumer is learning how to to better cope with a tougher financial environment:

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

Credit card debt

Credit card-related delinquencies were down to 3.5 percent from 5 percent in the previous quarter. Part of that drop was a reflection of loans written off by banks as bad debts.

[Delinquent on credit cards? Installment loans online may have lower interest.]

Banks healthier, more confident

The improved health of the post-bailout banks is also a factor in the improvement, says the ABA. Chessen added that banks are more willing to lend because of a growing confidence in an improving economy.

Other reasons cited for a more robust and confident banking industry are that consumers have tightened their belts and worked hard to pay down debts, and that the Federal Reserve has kept the interest rates intentionally low.

Housing loans and gas prices

The report expresses concern over housing loans that, though improving, as still delinquent at a very high rate. The escalating cost of gasoline was also a concern.

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.”

Unemployment hinders growth

Chessen sees unemployment as the largest factor slowing economic growth. Recent unemployment figures have been at their lowest in some time. However, says Chessen, they are still too high for a rapid economic recovery:

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