JULY 2004

Delinquency Rates Improve

The American Bankers Association (ABA) reported that for the first quarter of 2004, its seasonally-adjusted composite index of delinquency for eight types of closed-end consumer loans declined 1.6 percent from the fourth quarter of 2003. As of the end of March 2004, 1.86 percent of accounts in the composite index were 30 or more days past due. The ABA's composite delinquency index is based on closed-end direct and indirect automobile loans, personal loans, recreational vehicle, mobile home and marine loans, property improvement loans and home equity loans for a panel of 400 banks nationwide. The ABA survey also revealed that the 30 + day delinquency rate for bank card accounts fell 5 percent from its record high of 4.43 percent reached in the fourth quarter of 2003 to 4.21 percent in the first quarter of 2004. The ABA's chief economist, James Chessen, credited the improvement to "...job and income growth in 2003 and early 2004..." He also noted that recent trends in consumer payments on installment loans had reached "...levels we have not seen in nearly a decade."

The improvement in account-based credit card delinquency rates reported in the ABA's Consumer Credit Delinquency Bulletin for the first quarter of 2004 continued through May 2004 according to the receivables-based Standard and Poor's Credit Card Quality Index. Based on the performance of over $400 billion in securitized receivables that represents almost two-thirds of the U.S. bank card market, 30+ day delinquencies decreased for the fourth straight month to 4.4 percent—a level not seen since September 2000. While the continued improvement in the delinquency rate bodes well for future chargeoffs, the chargeoff rate for May 2004 increased 20 basis points from April to 7 percent of receivables. Despite the increase, S&P reported that May marked the ninth consecutive month in which chargeoff rates were at or below 7 percent and the seventh consecutive month of year-over-year improvement. S&P agrees with the ABA's Chessen and predicts that "continued improvements in employment numbers will likely dictate the direction of chargeoff and delinquency levels during the second half of 2004."

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