Regulation

United States-based auction Web site eBay Inc. says it is reviewing a directive from Australian competition authorities that delays company plans to mandate PayPal, eBay's payment service, as the only online-payment option on the company's Australian Web site, a spokesperson tells CardLine Global. EBay officials worked through Thursday night to "digest the information," the spokesperson says. "We will make further comment following the review process," the spokesperson says. On Thursday, the Australian Competition and Consumer Commission said it was determining if eBay's mandate is anticompetitive (CardLine Global, 13 June). The mandate was scheduled to start Tuesday.

MasterCard Europe has "temporarily repealed" its interchange rates that European regulators say violate antitrust rules, the card company said Thursday. The action applies to cross-border interchange merchant acquirers pay card issuers when customers use cards carrying the MasterCard or Maestro debit brands. On 19 Dec. 2007, the European Commission ordered MasterCard to lower the rates within six months or face daily fines amounting to 3.5% of global revenues. On 1 March, MasterCard filed an appeal with the European Court of First Instance. The card organization is continuing that appeal, though MasterCard does not expect a judgment until "the second half of 2010," a MasterCard spokesperson tells CardLine Global. The interchange rates average 1% of the sale for MasterCard-branded cards and 0.5% for Maestro-branded cards, the spokesperson says. "MasterCard believes its cross-border interchange system has kept the cost of payment cards low for cardholders," Javier Perez, MasterCard Europe president, says in a statement. In March, the European Commission said it was investigating the interchange rates applied to Visa card transactions in Europe and the card organization's rule that merchants must accept all Visa-branded cards regardless of the issuer or type of transaction. Visa said it expects to reach a "negotiated settlement" with regulators (CardLine Global, 3 April).

Australian authorities have told online auction company eBay Inc. to delay plans to mandate PayPal, eBay's payment service, as the only online-payment option on the company's Australian site. The Australian Competition and Consumer Commission is investigating whether the rule is anticompetitive. EBay has said that buyers and sellers are less likely to dispute transactions routed through PayPal than transactions routed through bank accounts. The commission says it will wait for a response from eBay and other interested parties before making a final decision. EBay did not return a CardLine Global request for comment. EBay has created a two-step process to enable Australian sellers to ready themselves to accept either PayPal or cash on pickup, the commission says in a statement. As of 21 May, all sellers were required to offer PayPal as one of their accepted payment methods. The second step, scheduled to start Tuesday, would require that all transactions on eBay be paid either through PayPal or cash on pickup. The regulation bans direct deposits, money orders and personal checks as payment. The new policy "will substantially reduce competition to supply online-payment services to users of online marketplaces more generally," Commission Chairman Graeme Samuel says in a statement. Last month, the commission told CardLine Global that authorities also are concerned that eBay's mandate will result in higher PayPal sellers' fees (CardLine Global, 15 May).

CompuCredit Corp., the Atlanta-based subprime credit card issuer that was sued yesterday by the Federal Trade Commission and faces charges by the Federal Deposit Insurance Corporation, issued a pointed response to the allegations by the federal agencies.

Credit card reform is emerging as a key issue on the campaign trail for presumptive Democratic presidential nominee Sen. Barack Obama, D-Ill., who is touting industry reform at public appearances this week. Kicking off his general campaign in Raleigh, N.C. on Monday, Obama promised new laws to curb what he calls abusive credit card practices. At another stop on his two-week, cross-country tour, Obama met today in Chicago with hard-pressed borrowers and consumer advocates. Obama vowed legislation that would prohibit credit card issuers from retroactively raising cardholders' interest rates on balances without their approval. He also promised to establish a federal credit card-rating system to help inform consumers of credit card choices. Obama last fall introduced the Credit Card Safety Star Act of 2007 with Sen. Ron Wyden, D-Ore. The legislation, which was referred to the Committee on Banking, Housing and Urban Affairs, would create a federal five-star rating system for credit cards (CardLine, 11/28/07). Late last year on the campaign trail, Obama began advocating a Credit Card Bill of Rights that would crack down on issuers that use what some consider deceptive practices (CardLine, 12/5/07).

Financial authorities in India reportedly will require payment card companies such as MasterCard Worldwide and Visa Inc. to provide regular financial reports of suspicious international transactions. The Indian government wants to reduce money laundering, according to press reports. Government and payments officials were unavailable for immediate comment. India's government recently amended the existing Prevention of Money Laundering Act, adding casinos, card issuers and funds-transfer companies to the law, which is designed to help prevent illegal foreign currency from circulating in the country. The original law, enacted about three years ago, previously applied only to banks.

CompuCredit Corp., an Atlanta-based credit card company, and two banks with which it has third-party card program arrangements, today are the subject of charges and a lawsuit filed, respectively, by the Federal Deposit Insurance Corporation and Federal Trade Commission. The FDIC is seeking consumer restitution it estimates will exceed $200 million. FDIC issued its enforcement actions against CompuCredit and two FDIC-supervised banks – First Bank of Delaware, which is based in Wilmington, Del., and First Bank & Trust, which is based in Brookings, S.D.– for allegedly marketing subprime credit cards in violation of the Federal Trade Commission Act. If FDIC's enforcement charges are upheld, the court would require the companies to provide credits for restitution for fees and charges arising from the deceptive marketing practices, FDIC board member Thomas J. Curry said at a news conference today. The FDIC also seeks civil penalties of $6.2 million against CompuCredit, and $431,000 against First Bank of Delaware and First Bank & Trust. Curry said supervised banks "must be highly vigilant about their third-party arrangements, especially in the subprime arena." When they are not, he said, it can lead to predatory lending practices and violations of federal consumer laws. FDIC and FTC each allege CompuCredit's card solicitations to subprime consumers failed to disclose significant upfront fees and misrepresented the initial available credit. For example, cards with an advertised $300 credit limit actually had $185 "in inadequately disclosed fees, leaving them with as little as $115 in available credit," Lydia Parnes, director of the FTC's Bureau of Consumer Protection, said at the news conference. The FTC complaint also cites violations of the Fair Debt Collection Practices Act stemming from allegations of abusive debt collection practices by CompuCredit's collection agency subsidiary, Jefferson Capital Systems LLC. FTC alleges that Jefferson misrepresented a debt collection program as a credit card offer and used such tactics as an egregious number of calls per day to debtors. The FDIC settled with a third bank, Columbus Bank and Trust, which is based in Columbus, Ga., and also was involved with CompuCredit's cards, for $7.5 million in consumer restitution and cooperation in the FDIC's action against CompuCredit, according to Curry. CompuCredit issued a statement saying the federal agencies' claims "are untrue and without merit," and the company "intends to vigorously contest these unsupported allegations."

Discover Financial Services is seeking $6 billion in damages in its antitrust lawsuit against Visa Inc. and MasterCard Worldwide, according to documents unsealed yesterday in U.S. District Court for the Southern District of New York. Discover filed the lawsuit in October 2004, shortly after the U.S. Supreme Court let stand a lower-court ruling in an antitrust case won by the U.S. Department of Justice that forced Visa and MasterCard to allow their member banks to issue credit cards on rival networks. Discover and AmEx alleged in separate lawsuits that Visa's and MasterCard's exclusionary rules hampered their ability to grow over many years. Last year, AmEx reached a $2.25 billion settlement with Visa in its lawsuit, which is similar to Discover's (CardLine, 11/7/07). MasterCard, which has not settled with either AmEx or Discover, said in a statement yesterday that Discover's damages claim is baseless. It contends that after MasterCard withdrew restrictions preventing its member banks from offering cards from rival networks, Discover has not experienced any significant increase in its overall percentage of credit card volume from third-party issuance. Visa earmarked $650 million for settling its Discover lawsuit in a $3 billion fund it established to settle future lawsuits after its record-setting initial public offering in March. "AmEx's settlement of more than $2 billion was considered pretty hefty, so I doubt we would see an amount as high as $6 billion in Discover's case," Eva Weber, an analyst with Boston-based Aite Group, tells CardLine. She expects Visa to settle its case with Discover as soon as possible. "It would seem that Visa would want to resolve this sooner rather than later, so the company can move forward," Weber says.

Legislation recently enacted in Tennessee goes further than other state laws in restricting credit card solicitations of students on college campuses, and it could create a precedent for stricter regulation of such marketing elsewhere, bankers and observers said.

The Fed's rate-cutting strategy to counteract the credit crisis has had consequences in Net banking. The alluring five-percent-plus rates that ING Direct, Citi, Capital One and others once offered for high-yield, online savings accounts (HYSAs) have dwindled to three percent territory.