Responding to the rise in credit card losses, the Office of the Comptroller of the Currency on Thursday issued a warning about the risks of preapproved solicitations.
In a seven-page advisory letter, the national bank regulator said weaknesses have cropped up in card marketing campaigns.
The agency suggested a number of remedies, which raised industry representatives' concerns about new compliance burdens.
"There are things in this letter that make my skin crawl," said American Bankers Association chief economist James F. Chessen. "I worry that ... a bank will have to create a huge file that sets out in writing every reason for its decisions."
For example, to help monitor the performance of accounts acquired through direct mail, the OCC recommended that bankers collect delinquency, bankruptcy, and account-usage data about their customers.
Allen Sanborn, president and chief executive of Robert Morris Associates, said the bulletin "is stronger than we had anticipated, particularly since we feel banks are taking actions already to remedy" the deteriorating quality of credit card loans.
But in an interview Thursday, Jimmy Barton, chief national bank examiner at the OCC, defended the document that went out to examiners and national bank executives.
"As we have watched this explosion in the growth of credit cards, we begin to see small weaknesses in the process," he said. "While there's no evidence of systemic credit quality problems, we want to keep it that way."
Some national banks are not adequately testing markets before they plunge in with preapproved lines of credit, OCC examiners have reported. This has resulted in higher-than-expected risks in card portfolios. In addition, the agency said some national banks do not compare the performance of newly issued credit cards with initial projections.
The advisory letter recommends a number of steps banks should take, such as cutting back on mail solicitations. The agency also recommended:
*Tightening underwriting standards.
*Analyzing the creditworthiness of potential customers.
*Monitoring high-risk customers.
*Beefing up collection efforts.
At a House Banking Committee hearing on consumer credit this month, Comptroller Eugene A. Ludwig said 2.7 billion credit card solicitations were mailed in 1995 - almost 17 for every U.S. citizen between ages 18 to 64.
Easy access to preapproved credit is one factor contributing to rising loss rates. The chargeoff ratio on commercial banks' credit card loans hit 4.48% in the second quarter, its highest level since the end of 1992.
"Aggressive competition recently has pressured some banks to forgo customary and effective testing of new credit card products and preapproved solicitation campaigns in hopes of capturing the market before a competitor," the OCC letter said.
Rep. John J. LaFalce, a New York Democrat and member of the House Banking Committee, said, "The OCC's actions are both timely and badly needed."
