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Credit Card Delinquency Rate Increases

Banking: 2nd-quarter rise in number of late payments is second highest since record-keeping began.

September 18, 1997|From Bloomberg News

The number of credit card holders who fell behind on their payments rose in the second quarter, breaking a streak of two back-to-back quarters of declines, the American Bankers Assn. said Wednesday.

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

Wednesday'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."

Nearly 19% of all U.S. purchases of goods and services were made by credit card in 1996, compared with 42% made in cash and 35% made by check, according to Master-Card International.

"The situation does not appear to have macroeconomic effects," said Lynn Reaser, chief economist for Barnett Banks Inc. "If the economy slows down significantly . . . there could be more serious difficulties."

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

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