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Sunday, November 23, 2008

Banks and Credit Card companies may put a damper on Christmas Shopping

The need by U.S. retailers' to sell in hard times has put them at odds with the lenders backing their credit cards. While stores aggressively promote use of their cards, lenders are increasingly wary of consumer defaults.

That conflict of interest, a direct result of the global credit crunch, could fuel escalated risk in 2009 following a holiday season in which more consumers are offered store credit cards that they may be less likely to repay.

"From the retailers' point of view, the more people who open up cards, the better it is for sales," said Laura Nishikawa, an analyst with Innovest Strategic Value Advisors.

But in the midst of the economic downturn, banks are working hard to protect themselves against defaults from existing cardholders, not to mention weeding out consumers with bad credit and maxed out accounts who seek new cards.

"As a bank right now, you're afraid you're picking up the bad apples," Nishikawa added. "That's one of the reasons a lot of the banks are tightening their standards."

The tug-of-war between retailers and lenders is accelerating, particularly as store chains pull out all the stops to ring up holiday sales in what is expected to be the worst shopping season in nearly two decades.

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