Good news: Less credit card junk mail, but ...

Updated: 4:01 p.m. ET Sept. 5, 2007

NEW YORK - The stream of credit offers that has filled consumers’ mailboxes in recent years may be slowing just a bit.

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 are also going through changes.

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 chief executive 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 as high as 5.9 percent, Arnold said.

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 card holder 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 riled 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.

Arnold, of CardRatings.com, said one card issuer has held the rate on its cards at 10.99 percent for customers with the best credit ratings; but those with poorer ratings will be paying interest of 18.99 percent, up from 17.99 percent just a few weeks ago, he said.

“In terms of rates, the fallout from the subprime mortgage market has financial institutions practicing risk-based pricing,” he said.

Although JP Morgan Chase’s Dimon discussed the steps his bank is taking, other credit card issuers were loath to reveal their credit terms. Asked about current conditions, Bank of America Corp. in Charlotte, N.C., said it “maintained consistent underwriting standards” and evaluated each credit application on the individual’s merits.

USAA in San Antonio said it was monitoring the market “and will make changes if necessary,” and Discover Financial Services said delinquency rates remained at a record low so it hadn’t changed business practices.

Arnold recommends consumers protect themselves against unpleasant surprises such as higher rates and shrinking credit lines. Although many consumers don’t even glance at the small print in credit card offers and their monthly statements, he suggests a careful reading of everything a card issuer or lender sends.

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