ederal regulators are tightening restrictions on credit card lending in an effort to reduce escalating consumer debt and defaults. Officials are targeting loans made to the sub-prime, or those made to people with poor credit histories and lower-income markets.

Guidelines established recently by the Federal Financial Institutions Examination Council also will require credit card issuers to implement better accounting practices and to set aside sufficient funds to cover loans they've made. The new guidelines will go into effect Sept. 23, 2002.

The council is an umbrella group of five financial institution regulators; the new rules were developed when the members compared notes and saw that several credit card companies were having the same types of problems. The rules are intended to clean up inconsistent accounting methods, curb giving credit to consumers who can't pay it back and ensure that the credit card companies have sufficient reserves to cover those bad loans and the fees associated with them.

According to the Wall Street Journal, some analysts say the effort to slow the growth of credit card lending to high-risk consumers could negatively impact the economy in the short run by slowing consumer spending. While spending has been good for the ailing U.S. economy, the rise in personal debt would affect the economy adversely in the long run.

Some estimates put sub-prime lending at 37 percent of all credit card loans, so slowdowns in lending to this segment would impact spending by a large number of Americans.

Red flags went up when several credit card companies ran into trouble in recent months. NextCard Inc., Providian, retailer Spiegel Group and Capitol One are among card issuers lending to the sub-prime market.

Credit card companies will be required to better evaluate consumers for credit-worthiness. For example, better consideration will have to be given to candidates for credit who have histories of repayment problems, instead of the companies simply issuing new cards. As it stands, a customer behind in payments might be given a new credit limit, which increases the debt rather than forcing it to be paid down.

The card companies also will have to immediately account for portions of loans they forgive and set aside capital reserves for uncollectable fees and finance charges.

As the credit card industry grows, so do the risks associated with it - for issuers and consumers alike. The increased federal scrutiny stems from concerns that in order to maintain revenue gains, some credit card companies have expanded their accounts too quickly without consistent accounting or enough risk management safeguards in place.

As a result, consumers are not only receiving the highest volume of mail solicitations for new cards in a decade, until recently they also were bombarded with offers on the Internet. The number of card solicitations over that last decade grew from one billion a year in 1991 to about five billion in 2001.

The credit card default rate doubled to seven percent during that same period, according to an analysis of 37 card portfolios done by Standard & Poor's Corp. One credit counseling office has received 32 percent more calls so far this year inquiring about its services than for all of 2001.