• Bloomberg Markets, Friday, May 28, 2010 9:45 AM

Former South Dakota Gov. William "Wild Bill" Janklow forever changed the credit card business in the U.S. in 1981 when he welcomed Citibank to his state after it removed the limits, known as usury caps, on the amount of interest that banks could charge borrowers. In light of the record write-off of $89 billion in bad debt in the U.S. last year, and issuers dumping risky customers like dogs shedding fleas, Lisa Kassenaar starts her analytical piece by talking with Janklow about the deal he cut with Citicorp CEO Walter Wriston that "transformed U.S. consumer lending."

It was all hunky-dory for most banks until the bottom fell out. "We have a business that is hemorrhaging money," says Paul Galant, CEO of Citigroup Inc.'s card unit, which lost $75 million on its branded cards last year, as well as an undisclosed amount on plastic it issued under the names of retail stores.

The lenders are reinventing themselves, and relying less on computer-generated data to assess borrowers. "We have shifted to more judgmental lending," says Susan Faulkner, who heads Bank of America's card operation.

Card companies have mostly set their sights on the most credit-worthy customers, Kassenaar reports -- a territory American Express successfully staked out a long time back. But, "everyone has more credit cards than they want," points out Elizabeth Warren, who chairs the Congressional oversight Panel of the Troubled Asset Relief Program. "There is no more growth."

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