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American Bankers Association reports increased card delinquencies

Jeremy Simon

The American Bankers Association has joined the chorus of voices warning that trouble in the economy is making life difficult for borrowers — and pushing delinquencies higher.

“Continued stress in the housing market combined with general weakness in the overall economy contributed to an increase in the delinquency rates for home equity lines of credit (HELOCs) and bank cards during the first quarter of 2008,” the ABA’s Consumer Credit Delinquency Bulletin reported today. The ABA says that bank card delinquencies rose 0.13 percent to 4.51 percent during the first three months of 2007, slightly exceeding the five year average delinquency rate of 4.40 percent.

In assigning blame for the rise in delinquencies, the ABA cited the usual culprits — weak personal earnings growth, falling home equity and stock prices, trouble in the job market and steeper food and energy costs. With those limited salary increases used to pay for more costly food and gas, “fewer resources have been available to manage debt,” ABA chief economist James Chessen said in the press release.

Late last month, credit rating agency Fitch Ratings likewise blamed an ongoing increase in credit card charge-offs and delinquencies on home price declines, rising unemployment and energy prices. Charge-offs are the value of uncollected credit card balances removed from the books and charged against a bank’s loss reserves.

The ABA’s chief economist doesn’t expect consumers to get any relief in the near future, which will leave delinquencies at an elevated level. “The tax stimulus is helping to boost personal income, but persistently high gas and food prices will eat away at overall resources,” Chessen said.

Experts have been sounding the warning for months. For a March article on how bank earnings impact credit card offers, research and advisory services firm TowerGroup’s senior bank card analyst Dennis Moroney predicted this summer would be a challenging time for credit card users and by extension, the banks that issue those credit cards. Moroney said that rising delinquencies would mean increased summertime losses.

Most recently, Moroney told me that June could see record high credit card delinquencies if consumers continue struggling to make payments. Unfortunately, with few signs of relief, it seems like second-quarter reports could reflect that reality.

See related: Fitch Ratings: credit card picture will worsen, Poll: Half of America won’t spend their ‘stimulus’ rebate, Gas prices take toll on family visits, Card issuers’ bad earnings reshape credit card offers, Fed’s G19 report: Credit card activity slows in April 2008

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  • Adrian Martinez

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