Credit Card Debt Law

It hasn’t been a particularly good month to be a credit card company or a credit card processor.

• American Express - Moody’s announced on Thursday that it is reevaluating American Express’ rating because of concerns over its credit card business and lending exposure.  (Details are in Reuters).  Moody’s cited a number of factors in the press release, but surprisingly didn’t list the impending government regulation on the credit card industry.  This news followed last month’s announcement by American Express of sharply lower earnings and that it doubled its loan loss provisions.  The CEO cited a much weaker economic climate.  Read more at Bloomberg.

• Citigroup reported a loss of $2.5 billion for the second quarter, the third straight quarter of losses.  Read more at CNN Money.  Among the reasons for the loss were problems with securities backed by credit card debt, and now there are questions as to whether the credit card securitization market will dry up like the mortgage backed securities market given the losses and recent reports that investors are becoming wary of bonds backed by credit card debt.  Citigroup was also fined $100 million for its role in the auction rate securities debacle and may have to write down the securities (or at least hold them on the books).

• Bank of America saw net income down 41 percent and its purchase of Countrywide has brought with it some legal problems.  And even though it is trying to brand itself as the Bank of Opportunity, it doesn’t want to give that opportunity to students (it cut its private student loan business in April).

• Mastercard was hit by credit concerns last month as well even though the story from Visa and Mastercard to investors has been that they are in a better position than credit card companies because they don’t hold consumer debt - they make money from processing transactions.  But the growth in credit card transactions slowed as consumers are cutting back on their credit card spending and using debit cards instead.