WASHINGTON -- Banks are aggressively enticing their customers with high spending limits on credit cards even as they push legislation to make it tougher for Americans to sweep their debts away in bankruptcy, a consumer group complained Wednesday.
The banking industry rejected the accusation of hypocrisy, saying consumers benefit from the choice and convenience of credit cards. With personal bankruptcies at an all-time high of 1.3 million, the banks said they are concerned about excessive consumer debt and have been tightening their credit card lending standards.
The debate comes as Congress weighs the most far-reaching overhaul of the nation's bankruptcy laws in 20 years. A bill passed last month by the House, on a 306-118 vote, would for the first time establish a "needs" test for people filing for bankruptcy court protection from creditors.
Opponents charge that lawmakers bowed to the profitable banking industry and credit card lobbies at the expense of honest working people hit by job losses, medical crises and ensuing financial disaster. The banking and retail credit industries spent millions of lobbying dollars campaigning for the legislation.
Prospects are unclear for a milder measure pending in the Senate.
"Banks are hypocritical to seek bankruptcy restrictions when their irresponsible marketing and extension of credit card debt has been an important cause of rising personal bankruptcies," Stephen Brobeck, executive director of Consumer Federation of America, told a news conference.
In a market increasingly dominated by a few big banks, Brobeck maintained, unused credit lines for bank cards totaled $1.8 billion at the end of March and bank card debt reached $425 billion.
He blamed what he sees as a two-part strategy by banks: mailing out credit card solicitations, now in the billions each year, aimed at getting people to open an account; then, after the consumer already is in debt, raising the credit limit on his or her account by hundreds of dollars to inappropriately high levels.
"They throw more credit at you," Brobeck said.
An official of the American Bankers Association, the industry's biggest trade group, insisted that banks have stiffened their credit card lending standards in recent years.
Nearly half the 6,000 U.S. banks that issue credit cards have actually reduced their credit limits, said Donald Ogilvie, the group's executive vice president.
"Banks are very concerned about high debt levels," Ogilvie said in a statement. "Banks must protect the financial soundness of their customers if they are to get their repeat business."
MasterCard International and Visa USA Inc., the two biggest credit card companies, also disputed the Consumer Federation's statements and said most consumers were able to manage their debts responsibly.
They cited recent American Bankers Association figures showing the delinquency rate on credit cards was 3.11 percent in the first quarter, significantly below the record 3.72 percent set in the fourth quarter of 1996.
Some analysts have noted, however, that the delinquency rate remained relatively high in the January-March quarter, despite low unemployment and strong inflation-adjusted income growth.
Advice from the Consumer Federation of America on handling credit card debt:
--The nation's credit card customers spent an estimated $70 billion last year on interest charges and fees. Avoid those charges or reduce them by paying off credit card debts as quickly as possible.
--Cancel all but one or two credit card accounts.
--Do not use home equity loans to refinance credit card debts unless you stop borrowing on the cards.
--Get help from nonprofit credit counseling services. Information on them is available at (800) 388-2227.
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