Credit card issuers see rise in delinquencies.

They cite consumer optimism as primary cause

Several L.A. County-based credit card issuers are reporting a small uptick in credit card delinquencies in the first quarter of 1995, but they said it is still too early to tell if a new trend is emerging. Most card issuers consider a credit card delinquent when the cardholder's payments are more than 30 days past due.

Credit card delinquencies at Hughes Aircraft Employees Federal Credit Union - L.A. County's largest credit union, according to the Business Journal's 1995 survey - are up "moderately" in 1995 compared with 1994, said Kathleen Gronnerud, spokeswoman for Manhattan Beach-based Hughes. She said there are currently 50,047 Hughes credit cards in circulation, with total outstanding balances of about $69.7 million. Gronnerud would not disclose how much of Hughes' current outstanding balances are more than 30 days past due.

Ken Ackbarali, vice president and senior economist at downtown L.A.-based First Interstate Bank, attributed the current rising trend in delinquencies to a combination of consumer optimism and the recent slowdown in the Southland economy.

"What's happened is that consumers, apart from spending their current earnings, are also depending heavily on spending from credit. This kind of spending tends to happen in an economy where people are optimistic about the future," said Ackbarali.

He went on to say that the current uptick in delinquencies in California probably is due to an overall slowing in the local economy that began in the first quarter of 1995.

Ackbarali explained that a credit card delinquency crisis like the one in the 1980s occurs when the optimism of upbeat cardholders, who tend to spend more, runs contrary to the actual state of the economy.

"If we were forecasting a recession for later this year, then we might see delinquency rates continue to grow," said Ackbarali. However, he said, the U.S. economy's current soundness should keep the delinquency situation from getting out of hand. "We may even see that the figures have peaked in the second quarter (of 1995)," he said.

National trend

The trend in Southern California mirrors an overall increase in credit card delinquencies nationwide.

The American Bankers Association, which calculates credit card delinquency rates based on a monthly survey of major banks nationwide, found that delinquency rates across the nation have ranged between 2.45 and 3.10 percent over the past 18 months. Delinquency rates for California have been slightly less, ranging from a low of 1.92 percent last October to a high of 2.32 percent in December 1994, according to the ABA.

Officials from Visa U.S.A. in San Francisco and MasterCard International in New York City reported marginally higher national delinquency rates for the same 18-month period, with most rates ranging between 3 and 3.5 percent.

In particular, figures from MasterCard and the ABA both showed an uptick in the rate of credit card delinquencies in the first part of this year compared with like periods for 1994.

Opinions varied on the significance of the upticks, with most industry sources still undecided about whether the rise is simply a hiccup or the beginning of a new trend.

Borrowing more

Nancy Maffucci, spokeswoman for MasterCard International, agreed that delinquency rates are inching up slightly; however, she pointed out that a much stronger industry trend over the past year has been a rapid expansion in overall credit card use in the United States.

The total outstanding balance for all MasterCard holders in the country stood at $84 billion in the first quarter of 1994, Maffucci said. The figure has grown steadily since then, to $88.6 billion in the second quarter of 1994, to $94.8 billion in the third quarter, to $103.4 billion in the fourth quarter of 1994, and to $105.2 billion in the first quarter of 1995.

Maffucci attributed the explosion in outstanding balances to an overall growth in the use of credit cards.

She said people are using their credit cards with growing frequency to make purchases at a wide range of places, including grocery stores, gas stations, movie theaters and health care facilities.

"The bottom line is that people are using their credit cards more because it's more convenient," she said. In addition to convenience of payment, another benefit of credit cards is having the convenience of having all purchases recorded in one statement, she said.

Ackbarali of First Interstate agreed that card use is up, noting that consumers are purchasing more big-ticket items - such as washing machines, televisions and refrigerators - on their credit cards in recent years.

"(Consumers) don't want to use large chunks of their own cash to buy these items," he said, noting that many credit card issuers are now granting more consumers high pre-approved credit lines necessary for big-ticket purchases.