High Food and Gas Prices Spark Uptick in Credit Card Delinquencies

With a staggering 9.2% of Americans unemployed and first-quarter economic growth clocking in at an underwhelming 1.8% annualized rate, it should come as no surprise that more consumers experienced difficulty making their credit card and other debt payments during the first three months of 2011. The ever increasing cost of food and gas is credited for these delinquencies.

According to a statement made by chief economist James Chessen of the American Bankers Association, "consumers are feeling insecure about the economy and whether their financial resources can carry them through until conditions improve.”

The ABA is an industry trade group for banks across the country that, among other things, keeps an eye on late payments for bank-provided credit cards, auto loans, home equity lines of credit, and other consumer loans.

First quarter data shows the delinquency rate on credit cards rose to 3.4% of all accounts, an increase from the 3.28% delinquency rate of the prior three months. To put it into perspective, however, the current delinquency rate is still well below the 15-year average of 3.95%.

“With a slow-growing economy and weak job growth, there will continue to be financial stress that will make it hard for some people to pay their bills on time," says Chessen. As defined by the ABA, a “delinquency” is any payment that is overdue by 30 days or more.

A wider examination of consumer delinquencies expanded to include home equity loans and auto payments also showed increases, from 2.68% in the fourth quarter of 2010 to 2.71% in the first quarter of 2011.

Until economic growth proceeds at a faster rate, the ABA acknowledges that any positive shift in consumer delinquency numbers is unexpected. "Until the economy shifts up a gear, employment improves, and food and gas prices stabilize, some people will struggle to make ends meet," Chessen noted.

Due to differences between President Obama and congressional Republicans, compelling job-creation policies or significant efforts to grow the economy are unlikely to come out of Washington any time before the 2012 elections.

Despite all this, delinquencies did in fact decline in certain categories, for example property improvement loans. With these particular loans, the delinquency rate dropped from 1.26 % in the final quarter of 2010 to 1.02% last quarter. Other areas seeing fewer delinquencies:

personal loans, direct auto loans, mobile home loans, RV loans, and marine loans.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.