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Consumers Enter Holiday Charging Season Giving Credit Cards A Rest

November 14, 1996

NEW YORK (AP) _ The credit card industry has a sharp eye on people like Robert Harpe.

Since landing a permanent job and entering a credit-counseling program last February, the 37-year-old quality control analyst hasn’t missed a payment on $5,300 worth of credit card debt he accumulated while bouncing around temporary jobs for three years.

It will take Harpe four more years to pay off the balances on his Visa, MasterCard and Rich’s department store charge cards _ if he keeps his job at First Data Corp. in Atlanta.

But if he is laid off a third time, as he was earlier by Merrill Lynch & Co. and again by Smith Barney & Co., that would be a different story. ``I don’t even want to think about it,″ he said. ``That bout with unemployment really opened my eyes.″

Over the past few months, consumers have left their plastic in their wallets to cool off just a bit. Like Harpe, they are reluctant to add more debt, even though most people believe the economy is strong, unemployment is low at 5.2 percent and wages are stable.

Still, ``there are people who are able to meet their obligations just barely right now,″ said Ruth Susswein, director of Bankcard Holders of America, a consumer group in Reston, Va.

``If inflation goes up or the economy goes down, or if interest rates go higher and suddenly it is even more costly to pay off the debts we already have, we’re in for some very serious trouble,″ she said.

By some measures, consumer borrowing health has improved as shoppers have throttled back and as card issuers, responding to mounting delinquencies, have become more selective.

Last week, the Federal Reserve said consumer debt, including credit cards and auto loans, fell 2.7 percent in September after rising 5.2 percent in August. The September figure was the first decline in more than three years.

Consumer credit balances are growing at an annualized pace of 8.6 percent. That is high, but down significantly from 14.5 percent in 1995, said Robert Johnson, research associate at the Credit Research Center at Purdue University.

According to Moody’s Investors Service, lenders declared uncollectible just under 5.6 percent of all outstanding consumer loans in September 1996.

That is up an alarming 30 percent from the September 1995 figure of 4.3 percent. But it was the smallest increase since March 1996 and the third consecutive monthly decline in the growth rate, Moody’s said.

As encouraging as this data might be to credit card issuers, it is too early to pop the champagne, experts warned. People might even think twice about purchasing a bottle of bubbly, especially with a credit card.

The American Bankers Association, for example, said a record high 3.7 percent of bank card accounts are at least 30 days overdue.

About 4.6 percent of the dollar amount of outstanding charges is delinquent. That is down a bit from the record of 4.92 in the first quarter of 1986, but it has risen every month for the past eight quarters, said ABA spokeswoman Nancy Ness Judy.

The main reason delinquencies are slowing down, points out Stuart Feldstein, president of SMR Research Corp. in Budd Lake, N.J., is a trend among consumers to not wait to get behind in their payments, but instead file a pre-emptive strike of bankruptcy to protect themselves from dunning creditors.

``The stigma of bankruptcy has been lifted,″ Feldstein said.

Bankruptcy filings are on pace to top an unprecedented 1 million this year, he said. That is more than triple the filings in 1981, at the height of ``the last really horrific recession,″ he added.

And despite the recent slowdown in charges, consumer debt burdens remain onerous. Since last March, households have devoted 11 percent of their take-home income to repaying consumer debt each month. That figure hasn’t budged since then, and it is the highest percentage since at least 1975, Moody’s said.

None of this bodes well for the day when the economy contracts.

If that happens before Robert Harpe and millions of others are able to pay back their loans, credit card issuers are ``going to see a lot higher charge-offs and a lot higher delinquencies,″ warned Moody’s credit analyst Andrew Silver.

``What we’ve seen should not be taken as an indication of how bad things can get in a deteriorating economic environment.″

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