Credit card reform may stall consumer lending efforts (re-selling debts)

[SoCalDem]

Credit card reform may stall consumer lending efforts
Mon Mar 30, 2009 6:00pm EDT
http://www.reuters.com/article/ousiv/idUSTRE52T7C820090330

By Nancy Leinfuss - Analysis

NEW YORK (Reuters) - Efforts by the Federal Reserve to stimulate consumer loan growth and reopen the securitization market may hit a snag if new legislation aimed at regulating credit card issuers constrains lending. Limiting credit card companies' ability to price in borrower risks may actually lead to decreased credit and thwart government programs created to revive lending, such as the Fed's recently launched Term Asset-Backed Securities Loan Facility, or TALF.

snip...

Congressional panels are to meet this week to discuss credit card legislation aimed at cleaning up unfair and deceptive practices that have slapped consumers with unexpected fees and rate hikes.

"The whole idea is that we want to be prudent going forward. We want responsible lending and we want responsible borrowing," Ron D'Vari, chief executive officer at NewOak Capital in New York, said of the legislation. "This is the only way the market will get back to stable equilibrium, because right now, credibility has been tainted pretty badly." Reforms are likely to result in lower revenues for credit card issuers, already in financial crisis as the U.S. economy struggles to emerge from recession.

"We need a certain amount of consumption to help drive the economy and the more that they legislate to put in rules that will not allow the credit card companies to appropriately price risks, the more they will not extend risks," said Braggs. Analysts say about 40 percent of consumer lending comes from the securitization market, which allows credit card issuers to remove debt from their books and issue securities backed by those assets. Lenders can then make new loans.

snip

John McElravey, an analyst at Wachovia Securities, said limiting credit card issuers' ability to price customer risks is a risky scenario. "It's somewhat contradictory given the environment that we're in right now with losses (on credit cards) rising. With risks rising, it would be appropriate for banks to be raising their risk-based pricing," said McElravey. "What this probably means is that they won't lend as much as they would have in the past," he said. Delinquencies breached all-time highs in January, according to Fitch's latest Credit Card Index results. Prime credit card delinquencies hit a record high of 4.04 percent through the end of January.

snip...

[ixion]

1. Ya know, I'm really tired of hearing bankers whine

and I mean really. :grr: :argh:

[elleng]

2. Really.

They'll adjust.

[HillbillyBob]

4. Me too. If they had to get by on our income

they would really piss and moan.
Let the bastards be homeless, completely broke and hungry for a while.
I bet they would freakin suicide or sit in the middle of the street the big babies.
I get fucking tired of doing without. We are down to being grateful we have a warm place to be and enough to eat and most of the bills paid on time.
They can all kiss my ----- I have not one iota of sympathy. They helped to get us here. We are not carrying a bunch of credit card debt (less than 500$). We have a house loan and car loan and did not even want to take either of those, but no way could we save for total purchase and the 1990 dodge caravan finally died and partner had to have a way to get to work that was dependable and good on gas.

[AndyA]

3. FUCK the credit card companies.

What they are doing now has the exact same effect. By raising interest rates for GOOD CUSTOMERS who pay on time, and always have, they are stalling the recovery of our economy. People aren't going to charge things and pay them off over a couple of months when the interest rate is 24%. The only people who will do such things are those who are desperate and have no other choice. In short, high risk customers who are more likely to default in the first place.

I got the notice from Capital One last month about the interest rate increase. I paid off my balance this month, and will only use the card for small purchases that will be paid off in full within a week or so after they are made. Capital One loses the small amount of interest I would have normally paid, and they will lose out on the fees to merchants for purchases I make that will not be charged to my Cap One card. In short, they will have less income from me going forward. Repeat that scenario by thousands of customers, and you can see the problem right away: reduced income for Cap One, and the people who will carry balances going forward will be higher risk.

Seems to me they have shot themselves in the foot with their predatory policies.

With stupid policies such as this, it's easy to see why the industry is in such a mess. I hope they get what they deserve.

[HillbillyBob]

5. Maybe we should all cut up the plastic and ship it by the truck load

to Wall Street and dump it in front of the stock market..

[SoCalDem]

7. What always amazes me is that they will SELL (for pennies on the dollar)

debts, but they will not negotiate with the card holder..

I think it was 60 Minutes that did a recent piece on something about this.. They sell the "unpaid debts' to vultures who pay them a pittance for it, and then harrass people to pay THEM..

If the repayment was so important to the credit card companies, why did they unload it for pennies on the dollar, to a third party?

If a "customer" owes $5000 to Citibank, and they are willing to sell the debt for $500 to Acme Kneebreaker Collection Agency, why not just close the account, and let the customer pay Citibank $1k..?

[depakid]

6. Yep- those secutities are far less risky if banks can ream consumers into default

This passes for "analysis?"

:crazy: