December 6, 2007

WSJ Op-Ed from Countrywide Chief: Calling Fannie and Freddie
Wall Street Journal (12/05/07) Mozilo, Angelo R.

Congressional reforms directed at the mortgage industry fall short because they do not address the cap size of mortgages that Fannie Mae and Freddie Mac and the Federal Housing Administration (FHA) can hold or insure, according to Countrywide Financial Chairman and CEO Angelo R. Mozilo in this Wall Street Journal op-ed piece. Financial Services Committee Chairman Barney Frank (D-Mass.) has made a point to push reforms that could preempt another crisis like the one currently visiting the mortgage industry. However, none of the bills pending in either house of Congress address the federal government's cap on the size of the mortgages government-sponsored enterprises (GSEs) can insure or hold, which is too small to be useful to most buyers. What Congress needs to do is raise the cap on FHA, Fannie Mae, and Freddie Mac mortgages by 50 percent, to $625,000 for one year. This change should be attached to a more comprehensive reform package to guarantee that the GSEs can support the housing market during an industry crisis, and that the proper governing bodies and controls are in place to ensure that taxpayers are protected. Meanwhile, the lending industry should try to help borrowers in danger of defaulting on their loans by working with Treasury Secretary Hank Paulson and HUD Secretary Alphonso Jackson to lower the foreclosure rate, Mozilo says.
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City Furniture Renews Consumer Financing Program With GE Money
Business Wire (12/03/07)

GE Money and City Furniture have announced that they will extend their consumer financing agreement, originated in 1990, over several more years. The City Furniture Card program offers instant credit at the point of sale, a simplified application process, and account maintenance over the Internet, among other features; it is managed by GE Money's Sales Finance unit. "Year over year, GE Money has proven their consumer financing expertise with continued innovation and customer service," says City Furniture President Keith Koenig, adding that he looks forward to continuing the relationship with GE Money. GE Money--Sales Finance vice president Greg Pittman says, "We're pleased to extend our partnership with City Furniture. The City Furniture Card is backed by customized, innovative technology that eases the application and purchasing process and increases a buyer's purchasing power."
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Card Wholesale Fees Hammered
Sydney Morning Herald (Australia) (12/05/07) P. 8; Kavanagh, John

Although the Reserve Bank of Australia's 2002 credit card reforms were successful in bringing down interchange fees, some say the reforms did not go far enough. In remarks at a two-day conference in Sydney that was organized by the Reserve Bank, Lexecon's Alan Frankel said interchange fees should be abolished altogether. "A merchant might do its credit card business with ANZ. ANZ is paying [interchange] fees to other banks for switching credit payments through the banking network and those fees are passed on to the merchant," Frankel said. "That is like getting a bill from a service provider that includes an additional charge to cover a portion of their telephone bill. It is not normal commercial practice to pass your bill on to a third party but that is what credit card scheme rules allow." Frankel added that if the Reserve Bank wanted to prevent interchange fees from being passed on to consumers it would have been better to establish a system where there is no provision for mandated merchant fees. Such a system would allow merchants to negotiate fees down to zero, if they had that pricing power, and pass the savings on to consumers.
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D.C. Card Math Now Subtracts Using Division
American Banker (12/05/07) Kaper, Stacy

Sen. Carl Levin (D-Mich.) has a history of successfully lobbying financial services providers to change their ways, and continued his critiques on Tuesday in a confrontational hearing with executives from Bank of America (BofA) and Discover Financial Services. Levin reprimanded the two providers for their "off us" repricing policies. One BofA customer testified that her rates rose after maintaining a balance near her credit limit, routinely making minimum payments, and experiencing a decline in her credit rating. Levin called the increase "unfair," adding that other major credit card companies like Citibank no longer review such activity when determining increases in interest rates. Bruce Hammonds, president of BofA's card services, argued that only 6.5 percent of the company's customers receive a rate increase due to either default repricing or risk-based repricing. The majority of the company's repricing revamps are based on defaults, in which a customer is late two times within one year. Hammonds added that BofA uses a number of risk behaviors to determine increases, but that credit scores are not used as a basis for term increases. Levin also censured BofA and Discover for failing to clearly disclose rate increases stemming from credit risk changes.
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Deadline Looms for Retail Compliance
Long Island Business News (NY) (11/30/07) Theis, Laura

Merchants who accept credit card payments have until Dec. 31 to comply with Payment Card Industry Security Standards, which require card handlers to establish a firewall to shield stored cardholder data, limit access to cardholder information by login names and passwords, and test security systems and processes on a regular basis. In addition, companies with a high volume of card transactions must submit to annual evaluations of their control systems by a PCI Security Standards Council-recognized security assessor. The PCI standards are applicable to any retailer whose yearly credit card transactions top 1 million, and failure to comply carries a maximum penalty of $500,000. The PCI standards and council were set up following fraud cases perpetrated by hackers who breached retailers' electronic data networks. The council was created by major cardholders who were tired of paying for fraud and ID theft cases and wanted retailers to bear some of the responsibility, says PricewaterhouseCoopers partner Peter Kaplan. Pricewaterhouse has organized a group to help its retail clients devise the internal controls needed to properly secure cardholder information, and is conferring with retail company executives to ensure that they can find the assistance they need to become compliant.
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Small Banks Start Bracing for 'Decoupled' Challenge
American Banker (11/28/07) P. 1; Fajt, Marissa

Capital One's issuance of a "decoupled" third-party debit card has aroused fears among community bankers of a potential decline in interchange fee revenue as well as the additional burden of dealing with complaints from customers when the new cards prove troublesome. The decoupled card is connected to a customer's existing checking account and directs payments along the automated clearing house network. Its chief advantage to customers is its rewards program, which adds a point to every dollar spent, according to ICBA Bancard executive Kevin Bell. Industry observers say bankers will have to find ways to boost their cards' appeal, either by adding their own rewards or by embedding them within a product package that dissuades customers from using the Capital One card. A new interpretation from Nacha has allayed bankers' fears that customers' daily debit purchases using Capital One's card would be rendered as a single ACH transaction in the account, and the interpretation requires each transaction by the third-party card issuer to have a separate ACH debit. "The basic reason for the interpretation is, it is important for both Nacha and the community bank, or any financial institution, to see the name of the merchant involved in the transaction," says Nacha CEO Elliott McEntee.
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