Credit-card holders behind on payments on the rise Previous two quarters had seen decreases

September 18, 1997|By BLOOMBERG NEWS

WASHINGTON -- The number of credit-card holders behind on their payments rose in the second quarter, after two back-to-back quarters of declines, the American Bankers Association said yesterday.

The trade group said 3.69 percent of credit-card accounts were delinquent in the second quarter of 1997, up from 3.51 percent in the first quarter and the second highest since record-keeping began in 1980. In the second quarter of 1996, 3.66 percent of accounts were behind in payments. In the fourth quarter of 1996, the delinquency rate reached an all-time high of 3.72 percent.

Yesterday's number "indicates that we haven't fully turned the corner on the problem," said James Chessen, ABA chief economist. "Banks will no doubt continue to tighten underwriting standards, and hopefully consumers will think twice about adding more debt."

Credit-card payments are considered delinquent when they are more than 30 days overdue.

"We're likely to see delinquencies bounce up and down over the next several quarters," Chessen said. "Unfortunately, the strong economy has seduced some consumers into thinking that high debt levels are acceptable."

Approximately 19 percent of all U.S. purchases of goods and services were made by credit card in 1996 compared with 42 percent made in cash, and 35 percent made by check, according to MasterCard International.

"Many consumers are over-leveraged, and they are having difficulties staying current with their borrowing obligations," said Lynn Reaser, chief economist for Florida-based Barnett Banks Inc.

"If the economy slows down significantly there could be more serious difficulties," Reaser said.

Personal bankruptcies hit a record in the 12-month period ending in June, rising to 1.26 million filings, according to the U.S. Bankruptcy Courts' administrative office.

The Federal Reserve found that in five of the past six quarters, the banking industry has tightened underwriting standards on consumer loans, according to the ABA.

Just last week, the Federal Deposit Insurance Corp. reported that profits from credit-card loans dropped $334 million in the second quarter from the first quarter of 1997.

"Anecdotally, we hear that [banks] are increasing their credit standards and reducing their mass mailing," said Andrew Hove, acting FDIC chairman.

Since 1995, banks have been working to trim overdue credit debt on their books by raising fees for late payments, making more frequent credit checks and lowering credit limits on delinquent customers.

The ABA report said 5.24 percent of the total dollar amount of credit-card payments were delinquent, down from 5.43 percent in the first quarter of 1997. In the second quarter of 1996, 4.61 percent of the total dollar amount of credit-card payments were delinquent.

Consumer debt totaled $1.225 trillion in July.

Pub Date: 9/18/97

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