Delinquencies fall as consumers pare debt

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WASHINGTON (MCT) — For the first time in 10 years, the national credit card delinquency rate fell from the previous quarter, more evidence that Americans are trying to pay down their debt as the recession continues to claim jobs.

The share of U.S. credit card holders who are 90 or more days delinquent fell to 1.1 percent in the third quarter, down from 1.17 percent in the second quarter, according to a new report by TransUnion, one of the leading credit-reporting agencies.

Mississippi topped all states with a 13.4 percent quarterly drop in its delinquency rate. The decline — along with a third-quarter slip in the savings rate — suggests “continued consumer efforts to keep debt to a minimum and debt repayment under control in the face of an already depressed labor market,” said Ezra Becker, the director of consulting and strategy in TransUnion’s financial services group. “Consumers recognize that their credit cards are their primary purchasing vehicles in this economy.”

As evidence, the average debt among card borrowers fell to $5,612 in the third quarter, down from $5,719 in the preceding quarter. The findings are based on data from nearly 27 million randomly sampled credit files that make up about 10 percent of U.S. consumers.

Alaska had the highest average card debt in the third quarter, at $7,699, while Iowa registered the lowest, at $4,225. Hawaii had the greatest quarterly increase, up nearly 5.5 percent.

Nevada’s nearly 2 percent delinquency rate was the nation’s highest, followed by Florida and Arizona at 1.47 percent and 1.35 percent, respectively. Falling real estate prices have hammered all three states.

Becker said the lower delinquency rate also probably reflected consumers’ reaction to higher fees, charges and modified card terms imposed in advance of the Credit Card Accountability, Responsibility and Disclosure Act of 2009.

President Barack Obama signed the measure into law in May, but many of its toughest provisions — those that make it harder for issuers to increase rates and impose fees — are slated to take effect in February.

The new February restrictions include bans on arbitrary increases in interest rates, over-the-limit fees without cardholders’ consent and payment deadlines that are set for early in the business day. The bill also requires that payments that are higher than the minimum go toward balances with the highest interest rates, and that penalty fees be reasonable and proportional to the violation.

Large card issuers already have begun raising interest rates, however, slashing credit lines and tightening credit standards to increase revenue and weed out risky customers before the restrictions take effect.

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