- The Washington Times - Friday, September 22, 2000

Fewer Americans were late making credit card and home equity payments in the second quarter, according to the American Bankers Association (ABA).

Economists said the drop in the credit card delinquency rate to its lowest point in five years is a reflection of the low unemployment rate. But rising delinquencies among other types of loans, including auto and home improvement, show rising interest rates are hitting some consumers hard.

"If there's a pinch with interest rates, it's that it forces those individuals just on the edge of meeting their obligations to decide what loan is going to be late this month," said James Chassen, the association's chief economist.

The number of credit card bills paid late in the quarter that ended June 30 fell to 2.99 percent of all accounts, down from 3.28 percent the previous quarter.

The last time delinquencies were that low was in the last quarter of 1994, when the rate was 2.93 percent.

Past-due payments on open-end home equity lines of credit fell even more dramatically to 1.06 percent, the lowest rate since the ABA began measuring home equity delinquencies in 1983.

"Historically, consumer credit delinquency rates have been closely correlated with the unemployment rate," said Mark Vitner, vice president and economist for First Union Corp.

He said banks have been tightening loan standards to brace for a slowing economy, which also could account for the decreased rate.

The Office of the Comptroller of the Currency reported Wednesday that banks are loosening standards for large syndicated and home equity loans, though there has been modest tightening in commercial and retail loan requirements.

Mr. Chassen said credit delinquencies rose in seven of eight categories the association examines for its composite figure, which rose to 2.30 percent from 2.14 percent last quarter.

Those categories include direct auto, indirect auto, personal, home improvement, recreational vehicle, mobile home and marine loans. Only closed-end home equity loan delinquencies decreased.

Mr. Chassen called the composite increase "a warning sign" that the economy is indeed slowing.

Mr. Vitner of First Union expects it to slow further as winter approaches and gasoline and home fuel prices remain high.

"Folks who don't have a lot of leeway in their household bills are going to have to increase their credit card balances in the next couple months" to buy gas and fuel, he said.

Joanne Kerstetter, president of the Consumer Credit Counseling Service of Greater Washington, said traffic in her offices has not decreased. Her agency counsels borrowers with debt trouble, often placing them on reduced-payment schedules.

Last year, 33,000 people visited the service's offices in the District of Columbia, Maryland, Virginia and West Virginia and paid down $46 million in debt.

This year, the service already has counseled 30,000 people who have paid down $33 million in debt.

Ms. Kerstetter said the fact that banks have tightened loan standards sends borrowers to her office sooner because they can't obtain loans to pay other debts.

"We find that safety net that people used to have with their savings account isn't there, and they're relying on credit," she said.

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