(WASHINGTON) First came the mortgage crisis. Now comes the credit card crunch.

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.

The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of unprecedented losses, after a gilded era in which it reaped near-record gains from the business of easy credit that it helped create.

Lenders wrote off an estimated US$21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments.

With companies laying off tens of thousands of workers amid the crisis, the industry stands to lose at least another US$55 billion over the next year and a half, analysts say.

Currently, the total losses amount to 5.5 per cent of credit card debt outstanding, and could surpass the 7.9 per cent level reached after the technology bubble burst in 2001.

'If unemployment continues to increase, credit card net charge-offs could exceed historical norms,' Gary Crittenden, Citigroup's chief financial officer, said.

Faced with sobering conditions, companies that issue MasterCard, Visa and other cards are rushing to stanch the bleeding, even as options once easily tapped by borrowers to pay off credit card obligations, like home equity lines or the ability to transfer balances to a new card, dry up. Big lenders - like American Express, Bank of America, Citigroup and even the retailer Target - have begun tightening standards for applicants and are culling their portfolios of the riskiest customers.

Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 per cent in the second quarter from the previous period, according to regulatory filings.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or work in troubled industries. In some cases, lenders are even pulling in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans.

A reduced line of credit can also make it harder for consumers to manage their budgets, since lenders have 30 days to notify their customers, and often wait to do so after taking action.

The depth of the financial crisis has shocked a credit-hooked nation into rethinking its habits. Many families once content to buy now and pay later are eager to trim their reliance on credit cards.

The Treasury Department recently started an advertising campaign inviting consumers to check into the 'Bad Credit Hotel', an online game that teaches the basics of maintaining good credit.

At the same time, the fear factor among lenders has deepened just as the crisis makes it harder for some financially stretched consumers to wean themselves from credit cards for even basic needs, like gas and food.

'We are not going to say, yahoo, this is over and extend credit like we did without fear,' Jamie Dimon, JPMorgan Chase's chief executive, said in a recent conference call. 'If you're not fearful, you're crazy.'

The creditworthy are no exception. American Express, which traditionally catered to more-upscale cardholders, said it would be increasing the effective interest rates by 2 or 3 percentage points for a broad range of its credit card holders - a move that could, for example, push a 15 per cent rate up to 18 per cent.

'We think it's prudent, given the nature of those products and the economic environment we face,' Daniel Henry, its chief financial officer, said in a recent conference call. -- NYT

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