Credit may not be in the cards

first_imgCONSUMERS: Issuers are becoming more selective as mortgage defaults increase. By Eileen Alt Powell THE ASSOCIATED PRESS NEW YORK – The stream of credit offers that has filled consumers’ mailboxes in recent years may be slowing just a bit. James Chessen, chief economist with the American Bankers Association trade group in Washington, D.C., said of lenders, “We’ve also heard they’re taking a more careful look at people with less-than-stellar credit. There’s the feeling that the risk may have been underpriced in the past.” But the changes in consumer credit products are not anywhere near as extreme as those involving mortgages. The dollar amounts involved in credit lines and consumer loans are much smaller – often a fraction of a typical mortgage – and defaults haven’t been as worrisome. “What’s driving what’s happening in the mortgage market is the increase in delinquencies,” said Greg McBride, senior financial analyst with Bankrate.com in North Palm Beach, Fla. “These other products haven’t shown that surge, and they have protections in place.” Credit card issuers, for example, can raise the rate on a customer’s card with little notice or shut off the line of credit at any point, he said. “So if a cardholder is showing signs of distress, the lender can scale him back from a $15,000 line of credit to $7,500 and limit its exposure,” McBride said. “It’s not like a mortgage, where the money is out there; it’s lent.” Another reason the changes to consumer loans have been small so far is that markets related to consumer credit haven’t been as roiled as those tied to mortgages, where growing defaults have prompted investors to shun mortgage-backed securities and have sent several dozen mortgage companies into bankruptcy. Because credit cards have not seen substantial increases in delinquencies, “we haven’t seen deterioration in the performance in credit card asset-backed securities,” said Cynthia Ullrich, a senior director in Fitch Ratings asset-backed securities group. Still, investors concerned about mortgage problems have demanded a slightly higher return on securities backed by credit card receivables in recent weeks to make up for a higher perceived risk, according to Wall Street analysts. Those higher costs in the secondary market are being passed on to consumers, Chessen said, noting that financial institutions have the tools to raise rates for riskier customers while holding them down for those with better credit scores. 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! Although credit card issuers and other companies that lend to consumers have escaped the barrage of defaults that mortgage lenders have suffered, they’re nonetheless being more careful about who they lend to, and under what terms. Some card issuers are raising interest rates, while others are cutting back offers to less creditworthy customers or lowering credit limits. Personal and auto loans also are changing. Credit card companies and other lenders are extremely reluctant to reveal the changes they’re making for competitive reasons. But Jamie Dimon, the president and CEO of JPMorgan Chase & Co., told a recent conference with analysts that his bank, one of the nation’s largest card issuers, was cutting back on teaser rates and balance transfers and looking instead to profit from greater growth in existing accounts. “Lenders are obviously doing some tightening to protect themselves,” said Curtis Arnold, founder of CardRatings.com of Little Rock, Ark. Arnold said he was seeing “pretty subtle – but significant – changes” in credit card offerings. One card issuer, for example, has reduced its introductory period for zero percent interest from “six months” to “up to six months,” Arnold said. Others are doing away with zero percent offers and going to teaser rates up to 5.9 percent, Arnold said. last_img