ATLANTA – The credit landscape continues its consistent recovery heading into the second quarter of 2012, with the exception of home finance, according to Equifax’s March National Consumer Credit Trends Report.

At the end of the first quarter, U.S. consumer debt was at $10.9 trillion, down more than 11 percent from its peak of $12.4 trillion in October 2008. Additionally, credit write-offs are 50 percent lower than in March 2009, when banks wrote off a total of $39.7 billion. In March 2012, the number stood at $20 billion, reflecting stronger consumer finances.

“During the recession, the average size of delinquencies rapidly increased as dollar rates were outpacing total number of delinquent accounts, a trend that has since reversed in auto, bankcard, consumer finance, and retail card categories,” the report read, in part.

More than 72 percent of total delinquencies are still tied to loans originated between 2005 and 2007, which account for 36 percent of balances outstanding. Loans opened in 2009 and later have performed much better, the report said. Only 12.6 percent of delinquent accounts are from credit lines or loans opened in or after 2009.

New non-mortgage credit balances continue to increase, while new auto, bank and retail cards, consumer finance, home equity and student loan credit rose to $61 billion in January 2012, an 11 percent increase over the same time a year ago when new accounts totaled $55 billion.

“Lower delinquency rates and fewer write-offs coupled with the growth of new credit across multiple sectors clearly outlines the increased activity of consumers and their renewed faith in the marketplace heading into the second quarter,” said Equifax Chief Economist Amy Crews Cutts. “Aside from Home finance, which will require a longer recovery time due to long foreclosure process, the data reflects the improving U.S. economy as consumers explore new financial options and exercise due diligence in repaying their existing debts.”

The following are key from the Equifax report:

Auto

• Auto loan and lease balances rose to a post-recession high of $727.5 billion in March 2012.
• Auto finance loans totaled more than $380 billion — the highest since the third quarter 2009. Delinquency rates among all auto loans are at their lowest point in five years.
• Auto sales are rising fast and new auto loans to pay for them are also growing. New auto loans obtained from banks in January 2012 rose to 728,000 accounts, up from 630,000 a year ago, while new auto loans from finance companies grew to 753,000 accounts from last January’s 735,500.

Bankcard and Consumer Finance

• Outstanding bankcard balances in March 2012 stood at $532.8 billion, an $8 billion decrease from the previous year; however, this is a modest drop compared to the decrease of more than $54 billion seen from 2010-2011.
• In March 2012, delinquencies and write-offs among existing bankcards were well below pre-recession levels and the lowest in five years.
• Available credit, the difference between credit limits and balances, is climbing and in March 2010 reached nearly $1.9 trillion, the highest since September 2009.
• New consumer finance loan volume totaled 1.4 million new accounts in January, an increase of 8 percent from the same month a year ago.
• Consumer finance loans taken out in January totaled $4.3 billion, a 12.1 percent increase over January 2011 volumes.

Student Loans

• While still elevated from previous years, write-offs decreased from the March 2011 and March 2012 period, the first reverse in the trend in six years.
• The average amount per new loan is currently $4,548, down nearly 20 percent from Jan. 2011 ($5,572). This was the first decline in three years.
• Similarly, loan amount per student dropped 12 percent to $6,917 vs. the same time last year.
• Borrowers between the ages of 30 and 29 took out 17 percent of the number of new student loans in January, equating to nearly 15 million loans. However, their loans represent 24 percent of the total dollar amount of new student loans opened in January (approximately $157 billion).
• Conversely, the 23-and-under age range took out nearly twice as many loans (just over 30 million), yet account for nearly the same total dollar amount.

WASHINGTON, D.C. – The Federal Trade Commission filed charges and requested a U.S. district court to stop the specific practices of two auto loan modification companies operating in California. The two companies charged include Hope for Car Owners LLC, NAFSO VLM Inc. and Kore Services LLC (doing business as Auto Debt Consulting).

The agency alleges that the defendants did not make any attempts to modify auto loans after collecting up-front fees and didn’t pay promised refunds for failing to do so. These companies also told consumers to pay them and, in turn, stop paying their auto lenders, reported F&I and Showroom magazine.

Auto Debt Consulting, for example, promised to reduce consumers’ monthly auto loan payments by 25 to 40 percent, but required up-front fees of between $350 and $799. On its Website, the company stated: “If you have engaged the services of Auto Debt Consulting for negotiating with your lender or bank on your behalf, and if for any reason you are dissatisfied with our services or we are unsuccessful in the negotiation process, we will provide a 100 percent money-back guarantee.”

In addition, the agency said one group of defendants told consumers to “hide [their] car[s] to avoid repossession.” The agency added that the promotional slogans used by the loan modification companies included “Join the thousands who have already saved,” “Consumer stimulus and bailout assistance,” and “Stop overpaying for a depreciating liability.” The defendants also gave toll-free numbers to consumers so telemarketers could sign them up for auto loan modifications, the FTC alleged.

The FTC asked the court to order the defendants to stop the alleged illegal conduct while the agency moves forward with the cases against the defendants.

The investigation comes on the heels of the FTC holding roundtable workshops to gather information about potential consumer protection issues that could arise during the sale, financing, or lease of vehicles. F&I contacted the FTC to find out what the agency is focusing on with regard to compliance in general, but Mark Eichorn, assistant director for the FTC’s Bureau of Consumer Protection’s Division of Privacy and Identity Protection, declined to provide specific details about any enforcement actions.

“Speaking generally, when we do compliance sweeps, investigations, etc., we use authorities granted the Commission,” Eichorn wrote in an e-mail. “Under Commission rules of practice, these actions are nonpublic until, for example, the commission votes to approve the issuance of a complaint or a complaint and consent agreement. As a matter of policy we neither confirm nor deny the existence of non-public law enforcement actions.”

The use of home equity loans to buy new cars is on the rise again, though not nearly to pre-recession levels, according to Bandon, Ore.-based CNW Research’s Art Spinella. He discussed this shift in the March 2012 Issue of CNW’s Retail Auto Summary, saying the increase in this form of financing is especially true among long-time homeowners with available equity.

To put this in context, Spinella writes that in 2007, consumers financed 11.8 percent of all new-car acquisitions with home equity loans. Even though the industry saw a huge drop in the number of consumers using this form of financing, down to a low of 4.4 percent in 2010, Spinella said he expects this number to hit a national average of 5 percent sometime this year, based on the first two months of 2012.

The U.S. states with the largest number of consumers using home equity loans to finance auto purchases were California and Florida. In California, 29.83 percent of consumers used this type of financing in 2007. Although that number dropped to 11.82 percent in 2011, CNW said it expects the use of home equity loans to rise to 12.5 percent sometime in 2012. Florida hit 19.72 percent in 2007, but saw the use of home equity loans drop to a low of 7.48 percent in 2009. Spinella said he expects it to rise to 11 percent this year.

Even with the increase in the number of home equity loans used for auto financing, Spinella said he doubts the industry will see record pre-recession sales again. “All of the stars were aligned when the industry hit 17 million units. One star was HE loans,” he wrote. “That’s a long way from returning to its peak, and until it does, 17 million-plus is currently only a dream.”

SCHAUMBURG — Experian Automotive announced that the automotive loan market showed continued improvement, with interest rates for new- and used-vehicle loans reaching the lowest levels since 2008, according to its quarterly automotive credit analysis.

In the fourth quarter 2011, average credit scores for new- and used-vehicle loans dropped, the percentage of loans to customers with nonprime, subprime or deep subprime credit scores increased, and lenders increased their willingness to make loans between six and seven years long, according to Experian.

“The improved automotive lending market is good news for consumers in the market to buy a vehicle,” said Melinda Zabritski, director of automotive lending at Experian Automotive. “The confluence of low interest rates, longer loan terms and an increase in loans outside of prime provide a great opportunity for more people to find a vehicle that suits their needs.”

Consumers continued to do a better job of repaying loans in the end-of-year quarter as loan delinquencies fell. The 30-day delinquency rate fell 6.57 percent from the year-ago quarter to 2.79 percent. The 60-day delinquency rate also fell by 9.51 percent from 0.79 percent in the fourth quarter 2010 to 0.72 percent in the last quarter of 2011.

Another positive sign for the lending market is that the overall dollar volume of loans at risk dropped to $18.5 billion, a $1.862 billion drop from the fourth quarter 2010. Meanwhile, the total volume of open loans rose by $23.9 billion in the fourth quarter last year to $658 billion.

“Lenders are clearly on much more solid ground than they were two or three years ago,” Zabritski said. “With delinquencies and total dollar volume at risk down, lenders have been able to adopt more aggressive strategies. This tends to benefit everyone, from lenders to automotive retailers to the end consumer. With more lenders aggressively competing for business, it’s a great time for consumers to buy or finance a vehicle.”

Average interest rates for new-vehicle loans fell to 4.52 percent from the year-ago quarter. Average interest rates for used vehicle loans fell also to 8.68 percent from 8.71 percent in the fourth quarter 2010.

Average credit scores for new-vehicle loans dropped six points to 761, while average credit scores for used-vehicle loans dropped nine points to 670. New-vehicle loans to nonprime, subprime and deep subprime customers increased by 13.8 percent from a year ago.

Loans of 73 to 84 months accounted for 14.1 percent of all new-vehicle loans and 9.04 percent of all used-vehicle loans, up 47.1 percent and 41.1 percent from the fourth quarter 2010, respectively.

NEW YORK — Fitch Ratings announced U.S. banks have a chance to foster loan growth via their auto portfolios, as consumer demand and sales of both new and used vehicles increases. The ratings agency added that timing and competition could present challenges.

U.S. banks continue to struggle with sluggish loan growth, but there are expansion prospects in the auto loan sector driven by high demand, according to Fitch. Last month, sales of new cars and trucks recorded their fastest monthly pace since 2009, and demand for used cars also has been on the rise, highlighted by an increase in used-car sales and overall demand in 2011, as well as a subsequent 3 percent rise in prices in 2011.

An ease in lending criteria to more normalized levels also has opened the door to borrowers that had been cut off to credit due to rigid lending standards. Fitch, however, said the loosening standards is driven by higher demand rather than riskier lending strategies. And while low interest rates continue to inhibit meaningful loan growth for banks, they also can precipitate consumer borrowing and beef up their portfolios.

Banks may be able to maneuver their auto loan portfolios with less difficulty vs. other sectors, given the typically short dated assets that run off relatively fast, leaving them with limited risk exposure. But unlike comparable loan sectors, Fitch added, the auto loan space is a dealer-based business. Banks that have not cultivated longer term relationships with dealers might find it difficult to enter or re-enter the auto loan business without facing barriers of access into dealer networks.

Captives have an advantage over banks in their ability to attract customers via manufacturer incentives and their intricate understanding of the underlying product and close dealer relations, according to Fitch. Since auto loan performance was the first of the consumer assets to turn the corner following the financial crisis, lending increased in 2011 over 2010, particularly in the below-prime sector.

The company said it also believes heavy demand could spur loan competition and drive down yields, putting pressure on margins. This could result in lenders loosening underwriting standards and overall credit.

CHICAGO — TransUnion said this week that the ratio of auto loan borrowers 60 or more days past due will remain the same between now and 2012. The credit reporting agency also predicts that the 60-day delinquency rate will remain unchanged at the end of 2012, and predicted that it will decrease in the first two quarters of 2012 before rising back to 0.51 percent.

Auto loan delinquencies have made a significant decline since peaking during the recession at 0.86 percent in the fourth quarter of 2008, according to TransUnion. Since that time, the rate has dropped to 0.81 percent in 2009 0.59 percent in 2010, and is now expected be at 0.51percent by the end of this year, reported F&I and Showroom magazine.

“Auto loans have performed quite well since the beginning of 2010 and we expect delinquencies to remain relatively low throughout 2012 as the gradual recovery in the economy will benefit both lenders and consumers,” said Peter Turek, automotive vice president in TransUnion’s financial services business unit. “With auto loan originations increasing dramatically in the last few years, one cause for concern is that any dramatic economic pressures — like we experienced during the last recession — could elevate delinquency levels since missed payments often occur early on in the life of the loan.”

Turek also noted that auto loan originations have greatly increased since the end of the recession, jumping nearly 28 percent as of the second quarter of 2011. Quarterly originations are nearly 41 percent higher than the lowest levels observed during the recession in the fourth quarter of 2008, and have risen approximately 8.4 percent in the last year.

Twenty-one states are expected to see delinquencies drop by the end of 2012, while 29 states should experience increases, according to TransUnion. The largest yearly percentage auto delinquency declines are expected in Michigan (-14.54 percent), Rhode Island (-14.22 percent) and North Carolina (-14.54 percent). The largest percentage increases are expected in North Dakota (72.47 percent), Alaska (25.43 percent) and Iowa (21.06 percent). Despite the large percentage increase in North Dakota’s auto delinquency rate, the state is still expected to have the lowest level in the nation at 0.16 percent.

60-Day Auto Loan Delinquency Projections for 2012

2010-2012    Q4 2010   Q4 2011    Q4 2012             

Highest Auto Loan Delinquency States         Q4 2012

Lowest Auto Loan Delinquency States          Q4 2012