Holiday Spending on Track, Default-Wary Issuers on Edge

Last weekend's shopping spree may portend healthier-than-expected retail sales through Christmas, but credit card lenders might have preferred a slowdown.

The card issuers are acutely aware of the credit quality problems that have been lurking all year, and that reckless consumer spending could exacerbate them.

"We are probably a little more attuned to that overall debt-load this year," said Larry Marik, senior vice president of retail banking at First National Bank and Trust Company of Columbus.

When customers come in to extend their credit limits or consolidate debts in advance of holiday shopping, the Nebraska community bank counsels them to be cautious and offers to help them assess their ability to repay.

"We don't want to see (retail sales) be a bust, nor do we want a boom beyond the ability to handle that debt," said Mr. Marik.

Retailers, on the other hand, are aggressively pushing their high-priced private label credit cards, touting offers of instant credit. (See box.)

RAM Research Group, Frederick, Md., estimated holiday card volume will grow 13% this year, to $131.4 billion. The number rose 20% and 22% the two previous years.

The decline is anticipated because of consumers' growing cautiousness about debt accumulation and lenders' efforts to tighten credit, said Robert B. McKinley, president of RAM Research.

Meanwhile, surveys by MasterCard International and American Express Co. show consumers plan to spend about the same amount on gifts this year as last.

The average American, according to the MasterCard survey, will spend $765 during the current shopping season, which is five days shorter than last year's. American Express estimated the average gift spending at $900.

Of consumers using credit cards for their purchases, according to the American Express survey, 52% said they plan to pay the balance in full when the bill arrives.

From lenders' perspective, Mr. McKinley said, "the volume factor is just not as important as the credit quality issue."

Nevertheless, data from Visa U.S.A. indicated card spending was brisk over the Thanksgiving weekend that kicked off the holiday rush.

Visa reported merchant volumes last Friday and Saturday were 20% higher than during the same period in 1995, at $2.2 billion.

Peter Williamson, managing director of SalesTrac USA Inc., Stamford, Conn., said consumers often think of themselves as being prudent, but "people's actual spending patterns are different from what they would like them to be."

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