U.S. regulators Wednesday recommended tighter lending standards for credit card issuers such as Citigroup Inc. and MBNA Corp., saying they've made it too easy for consumers to accumulate debt that the banks may have to write off.
Regulators, including the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp., said issuers should raise minimum payment requirements and reduce late fees to help consumers pay off principals faster. The FDIC, which guarantees bank deposits of up to $100,000, wants to avoid having to compensate customers of issuers that fail because of a surge in uncollectable debts.
"We observed some inappropriate practices that had crept into how credit card lenders were managing their accounts," said Barbara Grunkemeyer, the OCC's acting deputy comptroller for credit risk.
Shares of Capital One Financial Corp., which has targeted borrowers with histories of unpaid bills, jumped 10% because some investors expected stricter guidelines, analysts said. To prevent them from deferring losses indefinitely, for example, regulators said banks should give borrowers making payments on a negotiated schedule a maximum of five years to clear their delinquent debt. Banks and consumer activists had objected to draft regulations in July that proposed a four-year maximum.
The government decided to set the industry standards after bad debts ballooned at Providian Financial Corp. and Metris Cos. during the recession that started in March 2001. Last year, the FDIC was forced to pay off NextCard Inc. depositors after the online card issuer was shut down in February.
The guidelines do not carry the weight of regulations, though examiners will use them as a guide when evaluating individual banks, Grunkemeyer said.