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Banks retreat on credit cards

Kiss the days of easy credit good-bye.

Responding to recent rises in credit-card delinquencies and personal bankruptcies, banks have begun to crack down on the amount of credit they're providing to consumers.

Take the three companies with the biggest shares of Florida's market _ Barnett Banks Inc. in Jacksonville and NationsBank Corp. and First Union Corp., both in Charlotte, N.C.

They say they are getting more strict about whom they will give cards and how much credit they will provide. Barnett is even considering selling all or part of its portfolio of credit-card loans.

Consumers, for their part, will feel the waning of banks' appetite for credit-card lending in a raft of ways.

The pre-approved cards that have flooded mailboxes the last several years should disappear.

Some people may see the credit limits on their cards reduced, even halved.

Others, particularly those who have missed payments, may find themselves paying more for credit as banks raise late fees and over-the-limit fees and cut grace periods.

And some people simply won't be able to get credit anymore, as cards are canceled and applications rejected.

What's more, banks' reluctance to provide credit may ripple through to other forms of consumer loans, said Sam Beebe, an analyst with William R. Hough & Co. in St. Petersburg.

"If you're overloaded with credit cards, and you go down to apply for a car loan or a mortgage, you may not be able to get it," he said.

A survey released last week by the U.S. Comptroller of the Currency said that, among the nation's biggest banks, about two in five are tightening their consumer lending criteria.

In doing this, banks are responding to recent rises in credit-card delinquencies and bankruptcy filings and the increased scrutiny from federal lawmakers and regulators that has accompanied these developments.

Last week, at a congressional subcommittee hearing, regulators like Ricki Helfer, chairman of the Federal Deposit Insurance Corp., said the delinquencies don't threaten the health of the banking system, but deserve careful monitoring.

The hearing came after many of the nation's biggest banks reported higher credit-card delinquencies at the end of the quarter ended June 30.

Phil Davis, a senior vice president in Norfolk, Va., for NationsBank Card Services, blames the rise in delinquencies partly on a decline in thrift among consumers.

Davis points to the recent rise in the number of people and businesses filing for personal bankruptcy as a sign that some people take their debt obligations less seriously than they once did.

By July 12, bankruptcy filings nationally were 28 percent higher than they were at the same time last year, he said. By mid-July, 607,372 people and businesses had filed for bankruptcy, compared with 473,100 by the same time a year ago.

If that trend continues through the end of the year, bankruptcy filings will exceed 1-million in 1996 and set a new record. And this is happening at a time when the economy is growing steadily, and unemployment is low.

"These days, there seems to be very little social stigma to filing for bankruptcy," Davis said.

But Richard Bove, an analyst at Raymond James Financial Inc., said bankers have no one but themselves to blame for the uptick in credit-card delinquencies.

Several years ago, banks deployed computer software designed to ferret out the most profitable credit-card customers, he said. Specifically, they set out to identify people who borrow a lot, and therefore pay lots of interest _ and sometimes make late payments, and thus pay late fees.

Trouble is, these folks also turned out to pose a greater than expected risk as borrowers, too.

"The computer programs failed to recognize that once given the additional credit, these people would fail to pay it back," he said.

_ Information from American Banker and Times wires was used in this report.

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