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From the July 2003 Issue of CardTrak |
The potential expiration of the federal "Fair Credit Reporting Act" preemption could cause 14 million Americans to lose access to credit. A new study recently released found that more than 88% of consumers' credit scores would be affected if a patchwork of state laws were allowed to replace the current national consumer credit system. The NYC-based Information Policy Institute report finds that in the absence of the federal FCRA provisions, under various scenarios the cost of credit could rise $40 to $270 per year for the average American family. The report noted that prior to automated underwriting, enabled in part by the federal credit system, approving a mortgage loan took nearly three weeks on average. In 2002, more than 75 percent of all loan applications received approval in two to three minutes. The IPI says this saved consumers $54 billion between 1983 and 2001.
In 1996, the Congress amended the FCRA to preempt states from enacting laws or regulations dealing with seven areas addressed by the FCRA. These seven areas include: the procedures for using prescreened solicitations; the time for reinvestigating disputed information; the duties of creditors that take adverse action; the informational contents of consumer reports; the duties of furnishers of information; affiliate information sharing; and the form and content of the summary of rights disclosure. Through these preemption provisions, the Congress effectively established uniform national standards in these areas. The FCRA preemption provisions are scheduled to sunset on January 1, 2004. After that date, states would be permitted to enact laws in these seven areas if those laws explicitly provide that they are intended to supplement the FCRA and give greater protection to consumers than is provided under the FCRA.
The loss of the uniformity in the FCRA across the country will spell big trouble for both credit users and credit providers.
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| DEBIT LAWSUIT SETTLEMENT |
Federal judge John Gleeson has given his preliminary blessing to the settlement agreements signed on June 5th by the parties in the "VISA Check/MasterMoney" debit card antitrust litigation. The move now clears the way for notifying more than 8 million merchants about the settlement and the claim process. Merchants will have until September 5th to opt out. The specifics of the plan of allocation for the merchants' payments are scheduled to be submitted to the court on August 18th. A fairness hearing on final approval by the Court will be held September 25th. According to the settlement terms, VISA is set to pay $2.025 billion to merchants over the next 10 years and MasterCard is set to pay $1.025 billion over the same period. By December 22nd, VISA and MasterCard must pay $350 million to the settlement fund and then pay $300 million every year for the next nine years. The agreements also state that VISA and MasterCard will lower fees on off-line signature debit card transactions beginning August 1st. Also, as of January 1, 2004, merchants will no longer be forced to comply with the credit card associations' "Honor All Cards" rule.
In a related action, Federal judge John Gleeson denied TCF Financial Corporation's motion to intervene in the "VISA Check/MasterMoney" debit card antitrust litigation. TCF objected to the proposed interchange fee ceiling for debit cards. TCF says its interests are not currently represented before the Court and that fees for debit cards should not be set by lawyers negotiating in a room, but rather by the marketplace. TCF says the proposed settlement places the entire burden for price changes on VISA's debit-card issuers, not its credit-card issuers. Gleeson says TCF failed to understand that the ceiling is limited to a five month period, beginning August 1st, when debit and credit cards will be untied. On January 1st, the cap will disappear, and the parties will be able to freely negotiate debit card interchange fees. Gleeson says TCF's objection lacked merit.
Meanwhile, Best Buy filed its own lawsuit against VISA and MasterCard over fees its pays to accept debit and prepaid cards. The company says it has accepted nearly 90 million signature debit card payments over the past four years that has cost the retailer tens of millions of extra dollars compared to PIN debit card payments. The federal lawsuit was filed in Minneapolis. Other retailers such as Home Depot, Toys R Us, Meijer Stores, and Giant Eagle have also filed separate lawsuits over off-line debit cards.
MasterCard's U.S. region Board of Directors approved changes to lower the effective interchange rate on its consumer debit programs while increasing certain interchange rates on consumer credit cards and corporate cards. In broad terms, MasterCard's consumer credit card and corporate card interchange rates will each increase by approximately 1%, or an estimated 2 basis points. MasterCard said the credit and corporate rates were increased to address an existing competitive disadvantage. As expected, MasterCard will lower the effective interchange rate on its consumer debit programs in the U.S. region by one third, effective August 1, consistent with its settlement in the "Wal-Mart Debit Card Litigation." The new consumer debit card interchange rate structure will consist of a "Supermarket/Warehouse" rate; a "Convenience" rate (for Petroleum, Fast Food, Convenience Store and Movie Theater categories); and an "All Other" rate.
As VISA and MasterCard are still reeling from the recent debit card lawsuit, American Express is still perturbed over its inability to work with VISA and MasterCard banks to issue AmEx cards. In a June conference call, American Express says it may still take private legal action against VISA and MasterCard because of their bylaws, which prevent banks from working with AmEx. AmEx says it has lost a ton of profits because of the V/MC bylaws. AmEx said it clearly has a strategic and financial interest in the outcome of the DOJ lawsuit against the card associations. AmEx accused VISA and MasterCard of taking actions that are not always in the interest of their full membership. They said the substantial co-brand subsidies the associations make to a few of their large players to support sports leagues and other co-brand partners, produce no direct benefit to the majority of association members. Furthermore, VISA and MasterCard have failed to provide their members with competitive flexibility. AmEx says they respond by looking out for their own interests first, and they do this by restricting the ability of their members to openly compete across all fronts.
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| NEW GIZMOS |
Motorola, Nextel, and Creditel have partnered to launch a new solution to enable businesses to turn their Nextel phones into POS devices. The solution employs Creditel's "PowerSwipe" device and "PowerPay J2ME" application running on Nextel's national packet data network. Chase Merchant Services, provides merchant processing services for the "PowerPay" solution. "PowerSwipe" physically connects to the Nextel phone for unobstructed use, weighs 3.1 ounces, and incorporates a magnetic stripe reader, infrared printing port, and pass-through connector for charging the handset battery. The device will work on Motorola "i50sx," "i55sr," "i58sr," "i85s" and "i88s" handsets for Nextel. Motorola will distribute the Creditel POS solution in the United States and Canada through its Motorola authorized two-way radio and reseller channels. Nextel will distribute it through its direct and indirect sales channels.
Internet Pictures Corporation has launched a new service to enable Bank of America cardholders to customize their credit cards with personal scanned images. Under the "Photo Expressions" option, cardholders transmit, via the Internet, an electronic image of their choice, such as a photo of their pet or recent vacation. Cardholders can then make minor adjustments to that image and then, preview exactly what their new, personalized credit card design will look like before accepting. The option is exclusively available to existing Bank of America "Classic," "Gold" or "Platinum" consumer credit cardholders. iPIX is the largest online image management and distribution company in the world serving over a billion image views and two million image submissions daily for customers such as eBay, Homestore and the Los Angeles Times.
Masterfoods USA, a division of Mars, and USA Technologies have teamed offer the "e-Port" cashless payment system to the M&M'S branded snack food and ice cream vending machines. "e-Port" is now installed in M&M'S branded machines in major markets across the U.S. including New York City, Washington DC, Boston and Philadelphia, in a mix of high profile tourist & travel locations, entertainment venues, with planned expansion into hospitals and high traffic public locations. USA Technologies' "e-Port" wireless, cash-less payment system can be installed in standard vending machines in minutes at a very low cost. e-Port's versatility to accept multiple cash-less formats, including credit/debit cards, employee identification numbers keyed into a keypad, PDAs, cell phones and hotel room key cards.
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| BUGBEAR VIRUS |
Federal regulators issued an alert to financial institutions nationwide in regard to the potentially serious threat of the "Bugbear.B" Internet virus. The virus targets more than 1,300 specific financial institutions by including their Internet addresses in the virus's code. According to the OCC, the virus disables security software such as anti-virus software; installs spyware such as a keystroke logger and a remote control program; captures keystrokes to obtain authentication information, gathers other potentially sensitive information, and e-mails it outside the bank; and, collects and uses e-mail addresses to further distribute the virus from the infected machines. The disabling of security software, insertion of spyware, and e-mailing of information outside an infected bank could occur whether or not the bank is included in the 1,300 specifically mentioned bank Internet addresses. Bugbear.B uses a flaw in Microsoft's "Internet Explorer" program and its implementation by Microsoft's "Outlook" e-mail reader that allows the virus to infect machines whenever a victim simply previews an e-mail message loaded with the program. BugBear spreads via e-mail and local networks. The subject line, message body, and attachment are all selected from a random list, or chosen from file names already in the target computer's "My Documents" folder. The infected file itself has either a .exe, .scr, or a .pif extension. Blocking those extensions will protect e-mail users against infection.
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