According to the nice folks at the Federal Reserve, credit card borrowing is declining, down at a 9.7% annualized rate in February. That's the biggest drop since 1978, when Grease and Saturday Night Fever were playing in local theaters.

The drop may seem to represent consumers spending less or paying down their debts, but it also reflects lenders giving up on some debt, calling it uncollectible. Indeed, credit card delinquency rates are at an 18-year high, at 5.56%, and lender charge-offs recently surged from $3.6 billion to $6 billion in just one year.

For example, American Express (NYSE:AXP) recently reported a write-off level of 8.7%, while Citigroup (NYSE:C) saw its default rate jump from 7% in January to 9.3% in February.

In response, lenders are taking steps to rein in some excesses. American Express, for example, was recently offering its less-desirable customers $300 if they'd pay off their bills and close their accounts. Lenders are also hiking interest rates and trimming credit limits, among other things. For example:

  • JPMorgan Chase (NYSE:JPM) tried instituting a $10 monthly fee for its cardholders, but retracted that after protests. It did raise the minimum payment on large balances from 2% to 5%, which seems like a good thing, to me.
  • Capital One Financial (NYSE:COF) raised interest rates on a bunch of its cards (check yours!), and not insignificantly: One went from 7.15% to 11.9%, and another from 8.15% to 13.9%. This is good news if you're a shareholder, as it means more money flowing in to Capital One -- but if you're a borrower, it's your money, flowing out.
  • Citigroup hiked its default rate to 30% from 29% and its cash-advance rate from 20% to 22%, while reducing the period for 0% balance transfers from 12 to 6 months.

Other lenders, such as Discover Financial Services (NYSE:DFS) and Bank of America (NYSE:BAC), are likely to follow suit as competition remains fierce within the industry. And while companies like MasterCard (NYSE:MA) and Visa aren't directly hurt by chargeoffs since they don't bear credit risk, they could see reduced profits if transaction volumes continue to fall during the recession.

Overall, these are smart moves for these companies to bolster their financial health. Some, though, have suggested that the moves, in restraining borrowing, conflict with America's current need to stimulate spending. In this way, card companies might be seen as unpatriotic.

It's not so black and white, though. Raising rates on borrowers is actually good if it keeps them from over-borrowing, but bad if it increases their debt burden. Reducing credit limits can also be good. As a nation, we'll benefit from more spending, but not if people are spending what they don't have.

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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. American Express and Discover Financial Services are Motley Fool Inside Value selections. The Fool owns shares of American Express. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.