Lenders Again Toughen Rules for Consumers

WASHINGTON —  Banks are toughening their standards for lending to consumers because more Americans are willing to file for bankruptcy to avoid paying the money back, the Federal Reserve Board said Monday.

“Banks are pulling back somewhat in their lending to consumers,” the nation’s central bank said after the latest survey of 55 big domestic banks and 23 foreign-owned institutions.

Senior bank executives are polled every three months about changes in their lending practices to businesses and households. The previous survey, in late May, also found that concern among bankers about rising consumer loan delinquencies had caused them to tighten lending.

“These results represent the first time since 1981 that two consecutive surveys have shown a net reduction in willingness to make consumer installment loans,” the Fed said.

By contrast, standards for making business loans were little changed overall since May. In fact, many banks were making it easier for companies to qualify for commercial and industrial loans, the survey indicates.

Economist Sung Won Sohn at Norwest Corp. in Minneapolis said credit cards were the key problem area from the banks’ point of view. Delinquency rates on credit card payments were at a 15-year high, he said.

“But if you look at such categories as home equity loans or consumer installment loans for new car purchases, the credit-loss experience is not that much different than in the past,” Sohn said.

Nearly half the big banks tightened their standards for approving credit card applications and about a quarter made it harder to get an installment loan that required monthly payments.

The banks said they got tougher because they were being forced to write off more losses than they had anticipated when they were aggressively soliciting customers for their credit cards and loans.

Sohn said it appeared that not only banks, but also consumers, were becoming more cautious as credit card use was holding steady or declining slightly in recent months.

“Economic growth is likely to slow in the second half, in part because of weaker consumer spending resulting from more caution by lenders and consumers,” Sohn said.