Consumer credit dropped like a rock in July on a mix of tight supply, weak demand, and charge-offs of bad debt.

The U.S. Federal Reserve reported consumer credit fell by $21.6 billion, well below the $15.5 decrease recorded in June, marking a 10.4% annualized drop.

Numerous reports have indicated that banks have tightened their lending standards. A recent survey by the Fed found that bank lending is expected to be tight through the first half of 2010. Even though the economy has been warming, banks like Citigroup, Bank of America and Wells Fargo have continued to play hard-ball with their lending practices.

WASHINGTON, Feb 6 (Reuters) – U.S. consumer borrowing fell for the third straight month in December, the longest decline since 1991, while November’s record contraction was revised sharply lower, a Federal Reserve report showed on Friday.

The decline was larger than expected as analysts polled by Reuters forecast a $3 billion drop in consumer borrowing for December.