As the COVID-19 pandemic triggered a sharp economic slowdown, consumer credit delinquencies rose in the first quarter, according to the American Bankers Association’s consumer credit delinquency bulletin. Delinquencies rose in each of the 11 closed-end loan categories tracked by the association from January to March. Delinquencies in open-ended loans dropped, including bank cards and home equity lines of credit.
The composite ratio tracks delinquencies in eight closed-end installment loan categories, and rose 56 basis points to 2.7 percent of all accounts as the pandemic induced recession began. The report defines a delinquency as a payment 30 days or more overdue.
“The data show that consumers were generally in good financial condition prior to this recession, but the pandemic’s halt on commerce led to an unprecedented increase in unemployment that made it harder for some people to meet financial obligations,” said Rob Strand, a senior economist for the ABA. “Banks provided unprecedented assistance to their customers during this time of need and continue to support them as the pandemic continues.”
Bank card delinquencies fell 49 basis points to 2.62 percent of all accounts – the lowest level since 2016.
“Credit cards became even more important as social distancing measures severely limited in-person purchases, and consumers made sure to keep their accounts in good standing,” Strand said. “When it comes to cards, consumers have controlled what they could by keeping their balances down relative to disposable income, while issuers have maintained strong underwriting standards.”
Delinquencies through March dipped in one home-related category, and increased in two. Of all accounts, home equity line of credit delinquencies fell eight basis points to 1.04 percent; home equity loan delinquencies rose 47 basis points to 3.58 percent; and property improvement loan delinquencies rose 10 basis points to 1.64 percent.
“Auto loan delinquencies hovered at historically low levels for a number of years, but they had been incrementally increasing over the past few quarters as a natural part of the economic cycle and the pandemic accelerated that trend,” Strand said. “COVID-19 had an immediate effect on people who stretched their budgets to buy more expensive cars.”
Strand expects the virus to continue to affect delinquencies in the coming months. “The longevity of COVID-19 and how businesses navigate it is key to the economic outlook,” Strand said. “With more businesses reopening, more people are slowly getting back to work, which will enable them to better meet their obligations.”