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Fort Myers: credit card debt high, bank lending low

By Ace Reporter

Southwest Floridians are feeling the crunch of plastic—credit cards that is—as economic conditions deteriorate and borrowing limits are reduced. While consumers are forced to rely more on credit cards, banks are cutting back on their lending limits. Locals with credit card debt are being directed to private, nonprofit agencies for assistance.

How locals are being affected by the credit card crunch

Despite a brutal economic downturn, Jack Gordon religiously pays more than the minimum on his four credit cards as he tries to keep Salvatore’s Italian Restaurant in Cape Coral afloat.

Still, the amount he can borrow on the cards has slowly been cut back in recent months.

“They have all sent me notices that the amount of money I can withdraw has been capped and my interest rates have all gone up,” Gordon said.

Gordon is far from alone.

Now, more and more credit card debt is going delinquent and the middle class is starting to feel the pinch, experts say.

Here are two examples of the crunch’s affect:

– Maggie Pennyworthy and her husband Jason, both 76, of Lehigh Acres, are fighting to survive as they deal with the aftershocks of reduced credit limits and unemployment.

“Until a couple of months ago we were never late, paid on time, nine times out of 10 paid more than the minimum,” Maggie said. “Then they started increasing the interest and limiting our ability to borrow. Now we’re behind the eight ball. We’re on Social Security and we’re fighting.”

Jason is making a little money by taking aluminum cans and other items to a recycling business while he waits for a job at a local courier service. His credentials are good: 25 years driving a bus in New Jersey, where the Pennyworthys lived before retiring here.

Maggie said she’d like to pay off the credit cards, but Medicare supplemental insurance and the mortgage come first.

“There are certain things I can’t let go,” she said.

– In Fort Myers, Harvey Carson is also finding credit card problems are aggravating an already dismal business climate for the Sub & Pub he owns at Clifford Street and West First Street, just west of downtown.

The High Point Place condominiums sit nearby with only a few summer residents. Road construction plus city employee layoffs have also taken their toll, he said.

“It was tough enough to pay them in this bad economy before,” Carson said. “You can imagine how tough it became” after he missed two payments on one card eight months ago.

“All of a sudden my interest rate went from 9.99 percent on one card to 27.99 percent” and the other cards soon followed suit, he said.

He’s trying to work things out with settlements and a debt-reduction program.

“It’s almost to the point now where even if they finished (road construction) tomorrow, there’s not enough people downtown,” Carson said. “If things don’t change in the next six months, I doubt I’m going to be around.”

Carson is not alone.

Why lenders are trying to limit their losses

At Suncoast Schools Federal Credit Union, the amount of delinquent credit card debt has almost quintupled in about three years, from $3.7 million near the height of the real estate boom in March 2006 to $17.1 million in June 2009, the most recent month with data available.

Credit card debt is usually a major factor in bankruptcies as well, and the monthly number filed in Southwest Florida has gone from 24 in January 2006 to 723 in August 2009: up more than 30-fold.

Suncoast president Tim Montoya said like most lenders, he’s had to set tougher limits on customers’ credit cards.

“It’s not that you’re being so strict nobody qualifies, but we have an entire department working with people on forbearances and workouts and extensions,” he said. “More than we ever conceived of doing in the past.”

As cash-strapped budgets meet lower credit limits, increasingly the result is that a consumer simply maxes out a credit card and stops paying.

Locally, consumers in trouble with credit cards or other debts are being directed to private, nonprofit agencies for assistance, including Consumer Credit Counseling Service of the Florida Gulf Coast at 278-3121 and Christian Financial Counseling at 337-2122.

The national charge-off rate – percent of delinquent credit card loans removed from the lenders’ books – hit an all-time high of 9.55 in the second quarter of 2009, according to the Federal Reserve.

That’s by far the highest rate for any kind of consumer credit, which had a total charge-off of 5.7 percent in the second quarter.

That’s because for most people, the credit card is “the first bill people stop paying” when they get into financial straits, said Richard Wayne, senior director of public relations at the American Bankers Association.

“You’ll still pay your cable, your water and electric bill, and you’ll still pay your car payment,” Wayne said. “It’s part of the nature of credit card lending.”

Faced with that, lenders are trying to limit their losses.

“People who had $10,000 credit limits now have only $8,000 or $5,000,” Wayne said.

But even as banks pull back for some customers, the banking industry hasn’t given up trying to lure new ones.

Preventing the push of bankruptcy

In the second quarter of 2009, U.S. households received 349.1 million credit card offers, down 67 percent from the 1.1 billion a year earlier but off only 6 percent from the first quarter of ’09, according to Synovate, a market research company.

Some of the biggest lenders were ramping up their efforts, according to the Synovate study: Bank of America was up 77 percent and Citibank up 65 percent over the first quarter.

Aggressive marketing of cards and the tendency of some lenders until recently to increase limits repeatedly for someone close to reaching the maximum can push someone into bankruptcy eventually, said Carmen Dent, a Fort Myers-based bankruptcy attorney.

One of his clients with about $100,000 in credit card debt is on the verge of having to stop working and go on disability because of medical problems.

“This is debt that’s accrued over 10 years,” Dent said. “Usually if you make more than a minimum payment, they’ll increase your credit line.”

Now, Dent said, “there’s no choice. Ultimately it’s his decision, but there’s a strong likelihood of a bankruptcy.”

As the downturn continues, people generally have been borrowing as little as possible. U.S. consumer debt outstanding has been falling steadily since the fourth quarter of 2008 although the total was still $2.5 trillion in June, the last month available, according to the Federal Reserve.

Montoya said he sees that trend in the Suncoast members’ borrowing.

“We’ve had overall fewer loans in terms of dollars, ” he said, “our loan balances have decreased. People are cutting back, saving money.”

But for others, borrowing is a matter of economic survival.

“I use the cards because I own a business that’s trying to survive this economic crunch,” said Salvatore’s Gordon. “Six years ago I was flying high. I made good money, not lots of money.”

Now, he said, “I’m in the same boat as I would say the majority of the people who’ve lived not an extravagant life, but just to meet the bare necessities of life.”

Further readings

Credit card situation grim for Americans

Interest rates spike for credit card users before new law passes in February

Visual idea

Insert a line graph showing the statistics of credit card debt in Florida over the past 10 years

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