Wednesday, May 22, 2013
Delinquency rates on consumer loans and credit cards fell to a new all-time low in the first quarter of this year.
Abstracting from student loans, which are growing at a (frightening) 20%+ annual rate and now make up some 20% of all consumer credit, banks have not aggressively expanded their consumer lending activities, as shown in the chart above. This presumably owes much to tighter lending standards and to consumers' desire to deleverage. But there has not been a wholesale curtailment of consumer lending that might explain declining delinquency rates. Falling delinquency rates thus are most likely a sign of improving consumer finances, prudent lending standards, and greater job stability.
If there is anything to worry about, it is the still-rapid expansion of student loans that began in early 2009 when the federal government essentially took over the student loan market. The other day I helped my daughter apply for a $20,000 student loan and it took her about 5 minutes online to qualify. Surprisingly easy. Probably too easy for most, and a likely source of future problems. With easy access to federally-provided credit, students are enabling colleges to continue charging what in many cases are exorbitant amounts.
Watch out for the seemingly-inevitable bursting of the higher education bubble. In the meantime, declining consumer delinquency rates are a healthy sign.
Posted by Scott Grannis at 3:03 PM