Banks Tightening Credit Standards, Fed Survey Finds

With the national economy slowing, many banks are making it harder for consumers to get auto loans and qualify for credit cards, the Federal Reserve Board reported Tuesday in a survey of lending officers.

The tighter credit standards come at a time when some consumers, heavily burdened with debt, are finding it difficult to meet their financial obligations.

Delinquencies--a measure of payments more than 30 days in arrears--have been rising steadily on both mortgage loans and credit cards.

Wells Fargo began taking steps to tighten credit card lending in the second quarter of last year, said spokeswoman Kathleen Shilkret.

In an effort to weed out poor prospects, the bank raised the qualifying threshold for consumers who would receive mail solicitations for Wells credit cards.

And in the third quarter of last year, the bank began shortening the period after which a delinquent credit card account goes into collections.

“Some customers we had let go for as long as an entire statement period [30 to 45 days]” after missing a payment, Shilkret said. Now a customer with a poor payment history can expect his account to go to a collection agent as soon as a single payment is missed.

The Fed’s periodic survey of senior loan officers at 82 banks around the country shows a heightened conservatism in granting loans, particularly to individual consumers.

About 25% of the banks imposed tougher standards during the last three months for approving new credit card customers, the Fed reported. Tougher policies for auto loans were reported by 17% of the lenders.

The Fed report said the reluctant bankers cited “increased delinquency rates, increased household debt burdens, an increased willingness of households to declare bankruptcy and a less favorable economic outlook” in explaining their tougher standards.

In California, Bank of America, First Interstate and Sanwa Bank California all said they had not significantly tightened consumer credit, although they had seen increases in delinquencies or in bankruptcy filings.

First Interstate’s portfolio of consumer loans has seen delinquencies rise less than 1% from the fourth quarter of 1994 to the same quarter of 1995, said Robert Greene, executive vice president at First Interstate Bancorp in Los Angeles.

Greene said the banks most vulnerable to delinquencies are those that aggressively marketed credit cards or went “downscale” in seeking new customers.

Recent data show that Southern Californians in particular have been on a debt binge for the last several months, with personal debt loads rising, according to Claritas Inc., a market research firm in Arlington, Va.

At least 29% of the households surveyed in the five counties here owed creditors $10,000 or more, excluding mortgages--an increase from the 24% who owed that much a year ago, Claritas said.

Martin Cox, 35, a freelance photographer in Echo Park, was approached by many credit card companies. He was able to rack up $16,000 on six cards even though he had an annual salary of only $22,000.

“I never understood when I started getting gold cards in the mail with a $5,000 limit that this could be dangerous. I thought it was a good thing,” said Cox, who eventually sought help through credit counseling.

Times staff writer Debora Vrana in Orange County contributed to this report.