Credit cards: Issuers face new rules, old debts
Credit card companies are bracing for tough new consumer-protection rules, said Victoria McGrane in Politico.com. Under a compromise bill that garnered bipartisan support in the Senate this week, credit card companies would be sharply restricted from raising rates or imposing new fees on cardholders who stay current. But companies would be allowed to hike interest rates on cardholders who are 60 days behind on their payments. The bill also requires that promotional rates last at least six months and prohibits rate increases in the first year after an account is opened.
The credit card industry has other headaches as well, said Eric Dash and Andrew Martin in The New York Times. With unemployment soaring, struggling consumers are defaulting on their credit cards at a record rate. A new federal report suggests that “the nation’s 19 biggest banks could expect nearly $82.4 billion in credit card losses by the end of 2010.” As bad as these “grim projections” seem, many experts say they actually understate the size of the credit card losses. Industry consulting firm Oliver Wyman foresees total industry losses topping $186 billion by next year.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
SUBSCRIBE & SAVE
Sign up for The Week's Free Newsletters
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.
Latest Videos FromThe Week
Investing: Fraud charges at Reserve Management
The Securities and Exchange Commission has sued Reserve Management’s Bruce Bent, who created the first money-market fund, said Steve Stecklow in The Wall Street Journal. The suit accuses Bent of “falsely assuring” investors that the Reserve Primary Fund had “ample resources” to maintain its $1 share price, despite heavy losses during last September’s market panic. Instead, Reserve Primary became the first fund in 14 years to see its shares fall below $1. Bent says he always acted in the best interests of shareholders.
Autos: Porsche and VW to merge
Volkswagen and Porsche have agreed to merge, ending one of Europe’s longest-running takeover battles, said Daniel Schäfer in the Financial Times. The move will bring Porsche’s and VW’s nine brands under a single corporate roof, although Porsche will operate independently. Over almost four years, Porsche had built a
51 percent stake in VW, using “a contentious options strategy” that ultimately saddled Porsche with $12.2 billion in debt. VW will now take over that debt while increasing its capital through a $5.9 billion stock offering.
Mortgages: Fannie posts another big loss
Government-controlled mortgage financier Fannie Mae lost $23 billion in the first quarter and needs $19 billion from the U.S. Treasury to survive, said James Hagerty in The Wall Street Journal. Fannie Mae and its sister company Freddie Mac “are suffering huge losses largely because they are entirely focused on the weak housing market.” Fannie incurred most of its first-quarter loss by setting aside funds to cover future bad debts. Analysts expect Fannie “to continue building up loss reserves rapidly” for several more quarters.
Banking: New York Fed chief steps down
Stephen Friedman has resigned as president of the New York Federal Reserve Bank “over questions about his ties to Goldman Sachs officials,” said Ray Goldbacher in USA Today. Friedman is a director and shareholder of Goldman Sachs, which has been under the New York Fed’s oversight since it became a bank holding company last year. Some critics have complained that Friedman’s ties with Goldman, which helped devise the federal financial-rescue plan, created an apparent conflict of interest.
