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Table of Contents

Lead Story

Fine-tune for year-end bonanza

News

Industry Update

Industry Update

Bill Me Later welcomes eBay – will you?

Duel in the Big Apple

Regulation under the radar

European interchange battle escalates

Gift card hijacker gets 10 years

Features

Higher risks mean higher rewards

Ultimate distribution with Ultimate Game Card

ISOMetrics:
The indomitable holiday spirit

Industry Leader

Diana Mehochko –
Returning to industry roots

Views

Making cents of financial turbulence

Patti Murphy
The Takoma Group

Positively cash advance

Mike Landau
MaxAdvance

Education

Street SmartsSM:
Tough times pass, tough agents last

Jason Felts
Advanced Merchant Services

Drip for success

Nancy Drexler
SignaPay Ltd.

POS goes hybrid

Dale S. Laszig
DSL Direct LLC

Get organized - Part 1

Vicki M. Daughdrill
Small Business Resources LLC

The economy and your portfolio

Lane Gordon
MerchantPortfolios.com

Company Profile

Veratad Technologies LLC

New Products

Manage merchants with inventive POS

InventTrak v3.0
InvenTrak Point of Sale Products

Ignite revenue with SMS spark

SMS Gift Card Portal
SparkBase and Inspiron Logistics Corp.

Inspiration

Hi, um ... what's your name again?

Departments

Forum

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

October 27, 2008  •  Issue 08:10:02

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Regulation under the radar

Two proposed amendments from the Financial Accounting Standards Board to the rules governing the requirements by which banks secure loan assets could impact credit card profitability and reportedly cost financial institutions up to $60 billion a year.

Dennis Moroney, TowerGroup's Research Director, Bank Cards Division, said these amendments could adversely affect acquirers, processors and ISOs who depend on credit card transaction revenue for a majority of their profits.

"The FASB amendments essentially would require the assets that banks sell to investors be placed back onto the lenders' books," Moroney said. "The banks were getting the benefit of not having to secure those reserves. But the new rules would eliminate those outstanding reserves and require banks to match that capital with in-house assets.

"This means that banks have less money for loan investment, and consumers have less credit available to them. The unintended consequence here is that consumers will spend less on their cards, affecting acquirers and processors who depend on those transactions for much of their revenue."

The proposed methods of reporting and accounting for loan asset securitization - including credit card loans - could eliminate a significant portion of card revenue generated by interest and late payment fees.

Independent but interrelated

FASB is charged with establishing and updating standards of financial accounting and reporting. Amendments to its asset securitization accounting rules, FAS 140 and FIN 46R, would require additional disclosures and higher transparency of unsecured trusts, known as off-balance-sheet assets.

The Office of the Comptroller of the Currency believes these proposals take away flexibility for issuers to use risk-based pricing, forcing lenders to reduce credit card availability and borrowers' credit limits. This most directly affects higher-risk consumers who rely on revolving credit.

Risk-based credit card users pay higher interest rates because of a greater probability of delinquencies or chargebacks. The FASB amendments would strictly forbid changes and rate increases in this area.

"All of these factors, plus the Fed changes to credit terms and the Maloney Bill [HR 5244, the Credit Cardholders Bill of Rights] merely exacerbate events that seem independent but are really quite interrelated," Moroney said.

Holding our breath

Moroney feels that continued lobbying by the financial services industry is the best way to combat these proposed amendments. And merchant stickiness and budget controls should be priorities in light of potential losses the FASB amendments might bring.

With an increase in the number of consumers falling behind on credit card payments, Moroney sees issuers suspending or eliminating credit or reducing credit limits substantially. Such actions, he said, affect consumer purchasing patterns.

"I think everybody is holding their breath as we go into the most important time of year for retailers because projections right now for holiday spending look bleak," Moroney said.

Time for action

Moroney believes restrictions will only increase due largely to rising delinquencies, chargebacks and anticipation of potential interest rate changes.

"We see the way the winds are blowing; there's a lot of activity on the Hill, but this is an election year so everybody wants to look good," he said.

"You've got a series of events [from years of legislation] all converging now. They [Congress] believe their intentions are good, but the outcome - if all these fall into place over the next year or so - could cause collateral damage that is very bad for the markets in general.

The proposed FASB amendments will be open for public comment from financial institutions beginning Nov. 1, 2008. "The interesting thing, in my opinion, is no one is talking about this FASB change," Moroney added. "This is a big deal and I'm wondering why more folks aren't reacting to this."

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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