Late Payments on Credit Card Bills Drop

Late payments on credit card bills dipped in the second quarter, while delinquencies on home equity lines of credit climbed to a 5 1/2-year high, painting a mixed picture of how people are managing their debt.

The American Bankers Association, in its quarterly survey of consumer loans, reported Wednesday that late payments on credit card bills dropped to 4.39 percent in the April-to-June quarter. That was down from 4.41 percent in the first quarter and was the lowest reading since the final quarter of 2005.

The improvement, however, came before a credit crunch took a turn for the worse in August. Problems with "subprime" mortgages — made to people with spotty credit or low incomes — have rocked Wall Street in recent months.

Still, James Chessen, the association's chief economist, was heartened by the survey's overall results. "Consumers fared reasonably well in the second quarter despite turmoil in the subprime mortgage market," he said.

A still-sturdy employment climate and wage growth during the April-to-June quarter helped to cushion people from the ill effects of a deepening housing slump. Those positive forces have "helped to limit spillover to other consumer loans," Chessen said.

In August, however, the economy lost jobs for the first time in four years. Although economists are hoping for a jobs rebound, any continued weakness could put a strain on some people's ability to pay their bills on time.

Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks.

The survey also showed that the delinquency rate on a composite of other type of consumer loans, including those for autos and boats, home improvement and for certain home equity loans, decreased to 2.27 percent in the second quarter, from 2.42 percent in the first quarter.

Late payments on home equity lines of credit, however, jumped to 0.77 percent. That was up from 0.60 percent in the first quarter and was the highest reading since the final quarter of 2001.

The Federal Reserve's decision last week to slice a key interest rate for the first time in four years should provide borrowers with some relief.

It will become less expensive for people to finance certain credit card debt and for homeowners to take out popular home equity lines of credit, which often are used to pay for education, home improvements or medical bills.

Fallout from the housing slump has been painful. Home foreclosures in the second quarter hit a new high and delinquencies soared, according to a separate survey released by the Mortgage Bankers Association earlier this month. A combination of higher interest rates and weaker home values clobbered both borrowers and lenders.

The worst payment shock is hitting people who took out adjustable-rate mortgages with initially low "teaser" rates that "reset" to much higher rates over the life of the loan.

People "may feel helpless when faced with a mortgage reset they can't afford but they still want to keep up with other payments," Chessen said, explaining why late payments are down for credit cards but are up mortgages. "People need to pay for gas and their cars so that they can get to work."