November 29, 2007

GMAC May Buy Non-U.S. Lender to Combine With ResCap
Bloomberg (11/21/07) Salas, Caroline; Mildenberg, David

GMAC is considering purchasing a non-U.S. mortgage company, according to a statement from the lender. Moreover, GMAC could use the mortgage lender in a tie-up with Residential Capital to save its subprime lender from bankruptcy. "They're stating in a pretty solid way: 'If you want to price our debt at these distressed levels, we'll buy it back,'" says Mirko Mikelic, who helps manage $13 billion in fixed-income assets at Fifth Third Asset Management. "It's a smart move if you've got the capital." GMAC's new owner, Cerberus Capital Management, is bidding for Northern Rock, but a spokeswoman declined to comment on whether the U.K.-based mortgage lender was the target. GMAC, which added in the statement that it may sell parts of ResCap, also wants to buy back $750 million of its own debt.
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Deal Will Let Some Borrowers in California Keep Low Rates
New York Times (11/21/07) P. C7

In an effort to curtail foreclosures during the next two years--when interest rates on 500,000 subprime mortgage across the state readjust--California Gov. Arnold Schwarzenegger has forged an agreement with Countrywide Financial Corp., GMAC, Litton Loan Servicing, and HomeEq Servicing Corp. that would allow borrowers who likely will not be able to make their mortgage payments after the reset to keep their initial rates. In order to qualify for the program, borrowers must be current on their mortgage payments and reside in the homes. Ideally, the lower rates will remain in effect for five years; but individual circumstances will determine the time span, according to Schwarzenegger aide Sabrina Lockhart. She notes that the lenders plan to identify borrowers who would benefit from the program prior to their reset dates and upgrade their methods of gauging borrowers' ability to repay loans at reset rates, adding that borrowers need to make an effort to avoid foreclosure as well.
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Profit Squeeze, Interchange, and PCI Top Acquirers' Gripe List
Digital Transactions (11/26/07)

"Margin compression," high interchange, and compliance with the Payment Card Industry data-security standard were rated the acquiring industry's top three hurdles by an Aite Group survey of merchant acquirers and independent sales organizations. Aite analyst Adil Moussa says the margin compression partly stems from the growing commoditization of the acquiring business and partly from merchants' enthusiasm to shop for new processors. The pressure on discount rates is being stepped up by acquirers and ISOs generating lower revenues on highly profitable leases or sales of point-of-sale terminals, and the survey estimates that the share of merchant processors' revenues derived from discount rates rose from 77 percent in 2002 to about 81 percent in 2006, compared to a decline from 9 percent to 6 percent for sales of POS terminals. "Interchange is going higher, but also the discount rate acquirers can get away with is getting lower," notes Moussa. Acquirers and ISOs are offering merchant cash advances, automated clearing house services, and other profitable products in response to the pressure on bank card discount rates. Acquirers and ISOs are also unhappy about the heavy load they face in complying with PCI security standards, which reflects similar complaints from retailers and other merchants.
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Contactless Vending Gains 4,000 More Machines With Latest Pact
Digital Transactions (11/26/07)

Vending machine card-reading device vendor USA Technologies has entered into an agreement with MasterCard for the installation of USA Technologies' e-Port G6 magnetic-stripe and contactless payment card readers in over 4,000 vending machines. USA Technologies says the agreement with MasterCard is part of the card issuer's "PayPass seeding initiative," and a MasterCard representative says the effort seeks to maintain PayPass' competitive edge in the contactless payment sector and cultivate new acceptance venues for cards overall. This is the fourth pact between USA Technologies and MasterCard in the past 18 months and will bring the total number of already or soon to be e-Port-equipped vending machines to 17,500. The first agreement, to install e-Ports in 1,000 units owned by the Philadelphia Coca-Cola Bottling Co., was made in July 2006, and was followed in November 2006 with a deal to equip 5,000 Cadbury Schweppes Americas Beverages machines. In May the companies forged an agreement for USA Technologies to install 7,500 e-Ports in Coca-Cola Enterprises machines, and all but 500 of those machines had e-Ports installed by Oct. 31. In its quarterly report to shareholders, USA Technologies says it "is also considering the possibility of becoming a credit card processor. We believe that becoming a credit card processor would enable us to increase our processing revenues and gross profits."
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Opposing View: Let Consumers Choose
USA Today (11/16/07) Stinebert, Chris

There is a time and a place for credit cards with higher fees and lower lines of credit, says American Financial Services Association President and CEO Chris Stinebert. In his opinion, these cards should not be banned because sometimes they offer the best option for consumers who need to build up their credit. The higher fees are necessary in that they allow financial institutions to assume the elevated risk that comes with lending to consumers with bad or little credit. Although such cards should not be banned, Stinebert believes there are some guidelines that must be followed to keep consumers safe. First, fraudulent lending practices should be prosecuted to the full extent of the law. Next, all disclosures should be clear and understandable. And finally, consumers themselves must make sure they understand all parts of a card agreement before signing up.
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