Rewrite: Card Usage Rises as Credit Crunch Continues

Profiles in Credit - Business Owner: Jack Gordon

By Ace Reporter

More people are being forced to rely on their plastic, and increasingly skittish banks are cutting back on how much they’ll lend. More credit card debt is going delinquent than ever before as the middle class is starting to feel the pinch.

At Suncoast Schools Federal Credit Union, the amount of delinquent credit card debt has almost quintupled in about three years, from $3.7 million near the height of the real estate boom in March 2006 to $17.1 million in June 2009, the most recent month with data available.

Credit card debt is usually a major factor in bankruptcies as well, and the monthly number filed in Southwest Florida has gone from 24 in January 2006 to 723 in August 2009: up more than 30-fold.

Suncoast president Tim Montoya said like most lenders, he’s had to set tougher limits on customers’ credit cards.

“It’s not that you’re being so strict nobody qualifies, but we have an entire department working with people on forbearances and workouts and extensions,” he said. “More than we ever conceived of doing in the past.”

As cash-strapped budgets meet lower credit limits, increasingly the result is that a consumer simply maxes out a credit card and stops paying. It’s become more and more common for someone to just “walk away.”

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Liabilities Increasing for Banks and Consumers

The national charge-off rate – percent of delinquent credit card loans removed from the lenders’ books – hit an all-time high of 9.55 in the second quarter of 2009, according to the Federal Reserve.

That’s by far the highest rate for any kind of consumer credit, which had a total charge-off of 5.7 percent in the second quarter.

That’s because for most people, the credit card is “the first bill people stop paying” when they get into financial straits, said Richard Wayne, senior director of public relations at the American Bankers Association.

“You’ll still pay your cable, your water and electric bill, and you’ll still pay your car payment,” Wayne said. “It’s part of the nature of credit card lending.”

Faced with that, lenders are trying to limit their losses.

“People who had $10,000 credit limits now have only $8,000 or $5,000,” Wayne said.

Credit Card Offers Continue to Roll In

But even as banks pull back for some customers, the banking industry hasn’t given up trying to lure new ones. In the second quarter of 2009, U.S. households received 349.1 million credit card offers, down 67 percent from the 1.1 billion a year earlier but off only 6 percent from the first quarter of ’09, according to Synovate, a market research company.

Some of the biggest lenders were ramping up their efforts, according to the Synovate study: Bank of America was up 77 percent and Citibank up 65 percent over the first quarter.

As the downturn continues, people generally have been borrowing as little as possible. U.S. consumer debt outstanding has been falling steadily since the fourth quarter of 2008 although the total was still $2.5 trillion in June, the last month available, according to the Federal Reserve.

Montoya said he sees that trend in the Suncoast members’ borrowing. “We’ve had overall fewer loans in terms of dollars, ” he said, “our loan balances have decreased. People are cutting back, saving money.”

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Some Reaching Out for Debt Help

Aggressive marketing of cards and the tendency of some lenders until recently to increase limits repeatedly for someone close to reaching the maximum can push someone into bankruptcy eventually, said Carmen Dent, a Fort Myers-based bankruptcy attorney.

One of his clients with about $100,000 in credit card debt is on the verge of having to stop working and go on disability because of medical problems.

“This is debt that’s accrued over 10 years,” Dent said. “Usually if you make more than a minimum payment, they’ll increase your credit line.”

Now, Dent said, “there’s no choice. Ultimately it’s his decision, but there’s a strong likelihood of a bankruptcy.”

Locally, consumers in trouble with credit cards or other debts are being directed to private, nonprofit agencies for assistance, including Consumer Credit Counseling Service of the Florida Gulf Coast at 278-3121 and Christian Financial Counseling at 337-2122.

ART: Include a link to an interactive Vuvox slideshow which shows the hardships local people are going through because of the credit card crunch in their own words.

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