Credit Commentary

Job Loss Claims driving high delinquencies

By Zarana on Monday, July 13 2009

Soaring unemployment and mounting debt are leaving consumers hard-pressed to make loan payments on everything from credit cards to cars.

According to data from the American Bankers Associations, consumer delinquencies rose again in the first quarter of 2009 as job losses mounted. Balances on the credit card delinquencies, hit new record levels during the quarter.  The economy is losing jobs by the thousands, and mass layoffs and pay cuts have exacerbated the credit crunch. Banks have heightened lending standards because of default risk, providing less credit to consumers.

A report by labor department last week showed the economy fueled a much worse than expected 467,000 jobs in June, the first time since February that the number of jobs lost rose from the prior month. The unemployment rate climbed to a fresh 26-year high at 9.5%.

As mentioned in the ABA report, Credit card delinquency rate spiked 23 basis points to 4.75% in first quarter of 2009. However, the balances on the bank card delinquencies hit a new record, rising 108 basis points to 6.6% of the value of all outstanding bank card debt. The statistics are "a natural consequence of mounting job losses in a weakening economy," ABA Chief Economist James Chessen said in a statement.

Higher delinquencies, fueled by rising unemployment and the economic slump, force companies to squirrel away capital to reserve for potential losses; ultimately, companies must write off loans if customers can't pay up. That could mean more trouble for firms such as Citigroup Inc. (C), GMAC Inc., Bank of America Corp. (BAC), American Express Co. (AXP), Capital One Financial Corp. (COF), Discover Financial Services (DFS) and JPMorgan Chase & Co. (JPM).

The latest credit card master trust data from credit card securitization monthly reports shows very high Delinquency rate (over 30 days) across the Industry. However, Advanta reported very high delinquency rate compared to the industry average.

Additionally, the report mentioned the ABA's predictions for loan delinquencies were tied to the fate of the job market, which "is not likely to improve in the foreseeable future," Chessen noted.