- The Washington Times - Friday, August 16, 2002

Credit card issuers are sending more mail and extending higher credit limits to consumers who increasingly are backing away from new cards, a report states.

The credit card industry sent out 5 billion mailings for the 12-month period ended March 31, almost 50 per American household, while increasing unused lines of credit to $3 trillion for customers, or about $3,000 per household, according to a Consumer Federation of America report released yesterday.

Increased mailings are the result of higher competition in the credit market, said Chris Theoharides, president of Advantage Consulting Group, a Jericho, N.Y., consulting firm for the credit card industry.

"People are seeing more direct mail because the competition is continually growing, and issuers are moving to get customers to consolidate their cards into the one company credit card," Mr. Theoharides said.

But the response to those mailings is dropping to 0.5 percent from 0.6 percent a year earlier, said Travis Plunkett, CFA legislative director.

"People are realizing that they don't need an additional credit card, but that isn't stopping credit card companies from increasing their marketing, which suggests that credit cards are still highly profitable," Mr. Plunkett said.

The Federal Reserve reported in June that credit card profits for large banks had increased 3.24 percent. Credit card operations are often the most profitable operations for large banks and credit issuers, Mr. Plunkett said.

While Mr. Theoharides said credit card companies and banks are making profits off cards issued, the earnings are growing at a slower rate than they were in 1999, when earnings were increasing 3.34 percent.

"Profit margins are not what they were a few years ago because creditors are feeling the pressure to lower annual fees, pricing and APR [annual percentage rate] values," he said. "The money is made on the late or over-limit fees but with people limiting their card intake, that's decreasing as well."

The report comes two days after the U.S. Administrative Office of the U.S. Courts released a report saying personal bankruptcies hit a record high of 390,991 between April and June, up 5.9 percent from the previous three months.

Mr. Plunkett said the sluggish economy and high unemployment rate, at 5.9 percent, are factors for the high bankruptcy rate. CFA is opposed to a bill in Congress that would create tighter restrictions for people filing Chapter 7 or 13 under the bankruptcy law.

"If this bill becomes law, it would stop abusers, which is less than 3 percent of people who file [according to the American Bankruptcy Institute]," Mr. Plunkett said. "But, it would also influence many lenders to be more aggressive and predatory in their lending, hurt medium- to low-income families that are trying to get out of debt, and wouldn't penalize affluent debtors who own multimillion-dollar homes."

But Mr. Theoharides said the bill is essential in reducing the number of debtors and paying back creditors. "This curtails people who are high in debt and are looking for a way out rather than pay back their creditors," he said.

The House of Representatives has delayed a vote on the bill until at least September.

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