An economic forecasting firm sees a tapering off of consumer bankruptcy growth-but only temporarily.

Regional Financial Associates Inc. sees modest increases through next year in the statistic that galvanized lenders into a legislative reform effort.

But with an economic slowdown on the horizon, last year's record of about 1.4 million bankruptcy filings would be dwarfed by the 2.4 million that the West Chester, Pa.-based consulting firm projects for 2002.

Brian A. Nottage, senior economist at the firm, said a recent explosion in unused credit lines is an ominous sign, especially if coupled with a slowing economy.

"What you have now is people stocking cards away in a drawer, waiting for the next recession," Mr. Nottage said in a presentation at the American Bankers Association's bank card conference. "The near-term outlook for filings is quite positive, but longer term it is not."

Bankers see in the high bankruptcy numbers evidence of abuse and the need for legal reform, but from Mr. Nottage's perspective, several factors have kept filing rates artificially low. The strong economy, low unemployment and interest rates, and the mortgage refinancing wave suggest bankruptcy filings are "near the bottom of a cycle," he said.

They will increase 3% to 4% until 2000, Mr. Nottage said. The 1997 total "would have been 75,000 to 100,000 higher if the economy hadn't cooperated," he added.

The stigma of insolvency is diminishing, Mr. Nottage said, as bankruptcy lawyers advertise on prime-time television shows.

Starting in 1996, Mr. Nottage said, credit card lenders began tightening underwriting standards, curtailing credit to people with lower incomes and questionable credit histories.

The effects of pre-1996 easy credit "are cumulative," he said, meaning a "dramatic" falloff in credit quality lies some years out.

Until recently, Mr. Nottage noted, consumers' debt-service burden has remained fairly low. But now the percentage of income devoted to repayment of debt is inching up and has become particularly onerous for lower-income households.

In two to three years, bankers will begin feeling the ill effects, with bankruptcy numbers that will "make the rate we see now look relatively moderate," Mr. Nottage said.

J. Stephen Darsie, vice president of strategic solutions for Experian in Atlanta, said it is difficult for bankers to predict which customers are about to declare bankruptcy. Those who are financially troubled resemble others who revolve large balances from month to month and perform sizable numbers of transactions.

"Up to 40% of bankrupt customers were previously in good standing," Mr. Darsie said. "They don't necessarily look like traditional 'bads.'"

He listed a few distinguishing characteristics of bankruptcy filers: high balances, more charging, more new credit, more recent credit inquiries.

Bankruptcies "are still costing the bank card industry big bucks," Mr. Darsie said. "This is really a shell game where we're moving debts around, and the card companies end up shouldering a lot."

Mr. Nottage had other discouraging words. For one thing, there is little any individual lender can do to safeguard against a customer going bankrupt.

The federal reform proposals "might do a little in the short term but not much in the long term," he said.

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