Credit

United Kingdom-based credit card issuer Barclaycard has launched an ad campaign designed to run on mobile phones before other media, a company spokesperson tells CardLine Global. Barclaycard calls the campaign the first by a major advertiser to start with mobile phones and in a statement says the shift reflects "the new ways in which our target audience are consuming media." The ads attempt to sell neither cards nor card services, however, but instead "gadget insurance" for mobile phones and related devices. Barclaycard intends to run the ads through the third quarter, the spokesperson says. Barclaycard designed the campaign for customers of UK mobile network operator O2.

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.

Business Payment Systems LLC, a New York-based independent sales organization, faces paying $2.5 million to settle claims over alleged unsolicited faxes the company sent to plaintiffs in a class-action lawsuit, according to a settlement claims form the King County Superior Court in Washington state released Monday. In 2006, Kavu Inc., a Seattle-based clothing retailer, filed suit against Business Payment Systems, claiming the company violated the Telephone Consumer Protection Act of 1991 by allegedly sending unsolicited faxes to the merchant, court records show. In response to the 2006 complaint, Business Payment Systems denied any wrongdoing and said it neither knowingly nor willfully violated the act, which the ISO repeated in the claims form. Mike Berman, chief operating officer of Outside Ventures LLC, parent of Business Payment Systems, says the settlement should have little impact on the company. "The program [of sending faxes] has long been stopped," Berman tells CardLine sister publication ISO&Agent Weekly. The claims form says each class member could receive up to $1,500 in compensation. The court will hold a June 23 hearing to decide whether to approve the settlement. If the court approves the settlement, in exchange for receiving payment class members will release Business Payment Systems and its subsidiaries from all liability associated with the case.

Consumers will be able to cash checks at Diebold Inc. ATMs that use Valid Systems' check-cashing software, the two companies announced Monday at SourceMedia's third annual Underbanked Financial Services Forum in Miami. Diebold plans to offer the check-cashing services with its Opteva line of ATMs, Margaret Bost, Diebold director of financial industry marketing, tells CardLine. The Opteva ATMs create an image of a consumer's check, verify the user's identity and the check's validity using Valid Systems' software, and pay the consumer the check amount minus a fee, Bost says. Deployers can set the ATM so check-cashers do not need a debit or credit card to use them, she says. Valid Systems already provides software to such banks as Minneapolis-based U.S. Bancorp and Cleveland-based KeyBank that enables them to offer check-cashing services through tellers, John Templer Jr., the Fort Worth, Texas-based company's CEO, tells CardLine. Consumers must register with a bank by providing identifying information such as a driver's license, fingerprint and Social Security number, he says. Consumers do not need to provide all the information each time they cash a check, so the bank can decide which information it wants customers to use to identify themselves at ATMs, Bost says. The software then examines each transaction to ensure it complies with the Bank Secrecy Act, Office of Foreign Asset Control and Patriot Act regulations, Templer says. It also processes the check's bank-routing and account numbers to ensure the document is legitimate, he says. SourceMedia publishes CardLine.

The U.S. Environmental Protection Agency has renewed its contract with JPMorgan Chase & Co. to provide its travel and fleet charge card services, the bank announced today. The contract is part of the General Service Administration's SmartPay2 contract. Chase expects the EPA's annual travel and fleet card volume to exceed $80 million on nearly 20,000 cards. Chase also has contracts with the U.S. Department of Commerce (CardLine, 5/5), NASA (CardLine, 3/24), the Department of the Interior and the Department of Transportation (CardLine, 2/11). The first SmartPay program, which began in 1998 and expires in November, is the largest government charge card contract in the world according to the GSA, its SmartPay issuers and industry analysts. SmartPay handled more than $27 billion in sales and more than 91 million transactions in 2007.

Springbok Services Inc. has signed an agreement with Visa Inc. to offer Visa-branded prepaid card programs.

Moody's: Dichotomy in Card Delinquency Trends May be Due to Tough Collection Environment

Daniel R. Perlin, an equity analyst at Wachovia Corp., has raised his price target range for Visa Inc. shares Friday to $95 to $100 from his previous range of $85 to $90.

Consumer credit outstanding rose at a seasonally adjusted annual rate of 4.25% during April, aided by a 6.5% increase in borrowing on non-revolving accounts, consisting primarily of closed-end loans for items such as mobile homes, tuition and vacations. Revolving credit – primarily credit card spending – increased only 0.4% during April, compared with 7.4% growth in March.

Home Depot Inc. reports holders of its private-label credit card are more frequently paying late and defaulting as credit scores weaken across the board.

The U.S. Labor Department said today that the nation's unemployment rate jumped to 5.5% in May from 5.0% in April, the biggest monthly increase since February 1986 and a rise that places unemployment at the highest level since October 2004.

A work group of NACHA is discussing the possibility of merging into one rule set the three ways merchants convert paper checks consumers hand to cashiers or send through the mail into electronic ACH transactions. NACHA is the organization that oversees automated clearinghouse rules in the United States. Merging the three rules would provide one standard entry-class code, which might simplify recording of transactions for banks, merchants and others who use ACH networks. "There's been a push by the banks for that to happen," says Amy Gutierrez, a member of NACHA's Electronic Check Council and vice president of strategic market development for Elavon, a payment-services division of U.S. Bancorp. Gutierrez, who also is a member of the NACHA Product Application Project work group that has been studying the possibility for several months, tells CardLine sister publication Cards&Payments discussions are very preliminary, and it is too early to know the full feasibility of combining the three codes into one. POP, which stands for point-of-purchase conversion, is the code used for transactions that occur when cashiers capture check-routing information at the point of sale and hand voided paper checks back to customers before they leave the store. BOC, for back-office conversion, allows cashiers to keep shoppers' checks so someone else can later convert them into ACH and other electronic transactions. Merchants and recurring billers use ARC, which stands for accounts-receivable conversion, to convert paper checks they receive through the mail or in unattended drop boxes into ACH transactions. Gutierrez says she believes NACHA eventually will combine the three conversion methods into one ACH code, but the possibility will take months of slow and careful consideration.

Companies that want to reach the underbanked market should understand the different market segments, Michael Hermann, research director of the Center for Financial Services Innovation, told an audience yesterday at the third annual Underbanked Financial Services Forum in Miami. The center released preliminary findings from its market-segmentation research today. It found that there are 40 million U.S. households, which means about 106 million individuals, are unbanked or underbanked. The center defines unbanked consumers as those without bank accounts and underbanked consumers as those who may have bank accounts but who still receive some financial services through alternative providers such as check cashers and payday lenders, Hermann said. A survey of 2,799 underbanked adults ages 18 and older found that respondents had a median annual household income of $26,390 and a mean annual household income of $47,500. Almost half (47%) of the respondents said they held full-time jobs, and 11% said they held part-time jobs. The survey also found that, among the unemployed respondents, 52% were retired or were homemakers, Herman said. The center received enough information to determine credit scores for 79% of the respondents. It found that 25% had a prime credit score, 42% had a thin or no credit file and 33% were considered subprime. This suggests that financial-services companies should not equate underbanked with subprime, Jennifer Tescher, director of the Chicago-based center, said during a separate forum presentation today. Unbanked consumers cited not having enough money as the main reason for not having a bank account, Hermann said during his presentation. Underbanked consumers have financial goals, with 70% saying that saving for emergencies is "extremely important" or "very important," 65% saying saving for retirement is "extremely important" or "very important" and 49% saying the same about saving for college costs. Hermann told the audience that understanding the different groups of underbanked consumers could lead to better product design, marketing and risk management. "We can't address the underbanked as a single monolith," he said.

Wal-Mart Stores Inc. has sold 1 million prepaid Visa cards since it launched the program nearly a year ago, and cardholders have loaded more than $1 billion on those cards, Jane Thompson, president of Wal-Mart Financial Services, told attendees today at the third annual Underbanked Financial Services Forum in Miami. The card sells for $8.94 in stores, has a monthly maintenance fee of $4.94 and can be reloaded for $4.64 , according to a Wal-Mart Fact sheet. Wal-Mart waives the monthly fee for the following month when consumers load at least $1,000, and it waives the reload fee if customers use direct deposit or load funds from a check cashed at Wal-Mart, according to the fact sheet. Wal-Mart uses the cards to reach underbanked or unbanked consumers, Thompson said. To continue to market to those customers, the company, which is based on Bentonville, Ark., plans to increase the number of Money Centers in its stores where consumers can buy money orders, wire funds and cash checks, Thompson said. The company operates 500 Money Centers and plans to have 780 open by yearend and 1,000 by early next year. Wal-Mart also offers online bill payment for its prepaid card customers and has started to support bill payment at its stores, said Thompson. Wal-Mart offers CheckFree Corp.'s bill-payment service in 400 stores and plans to roll out the service to 3,600 stores over the next 90 days, Thompson told CardLine after her presentation. CheckFree is based in Wallingford, Conn. Thompson says Wal-Mart does not plan to pursue a bank charter but instead will look for partners to help it offer expanded financial services, including savings products.

Consumer credit outstanding during April rose at a seasonally adjusted annual rate of 4.25%, but Americans cut back on their borrowing with revolving credit, primarily credit cards, which increased only 0.4% during April compared with 7.4% growth in March and 1.1% growth in April 2007, according to preliminary estimates in the Federal Reserve Board's monthly Consumer Credit survey, released Friday. The growth in consumer credit came from a 6.5% increase in borrowing on nonrevolving accounts, primarily consisting of closed-end loans for such items as mobile homes, tuition and vacations. The total increase in April's consumer credit outstanding compares with a 6.2% seasonally adjusted growth rate during March and a 0.2% growth rate in April 2007. Revolving credit (card borrowing) during April equaled $956.9 billion, up just 0.03% from $956.6 billion in March but rising 7.8% from $887.6 billion in April 2007. Total consumer credit outstanding in April was $2.56 trillion, rising only a fraction of a percent from March and up 5.3% from nearly $2.43 trillion in April 2007. Nonrevolving credit outstanding approached $1.61 trillion in April, up 0.62% from $1.6 trillion in March and up 4.5% from $1.54 trillion in April 2007.

Bank of America Corp. is raising its ATM surcharge in the Chicago market to $3 from $2 per transaction, bringing the city's surcharge to the same rate the bank charges nationally, according to a BofA spokesperson. The fee increase will go into effect June 23, and BofA today began alerting customers in Illinois, Michigan and Indiana about the change that affects noncustomers of the bank. The fee also will be disclosed on decals the bank is posting on its Chicago-area ATMs, says the spokesperson. BofA raised its national ATM surcharge to $3 from $2 the first week of August (CardLine, 8/2/07). At the time, BofA was working to acquire Chicago-based LaSalle Bank; it completed the transaction in October. Noncustomers complete less than 10% of BofA's ATM transactions, according to the spokesperson. "Quite frankly, we would prefer that these customers open an account with us and avoid this fee altogether," says the spokesperson with Charlotte, N.C.-based BofA.

Fair Isaac Corp. today announced a strategic partnership with Memento Inc. to provide financial services institutions and credit unions with new tools to fight internal fraud. According to Concord, Mass.-based Memento, most serious fraud threats come from internal sources, and the company's services enable institutions to detect internal fraud at an early stage, thereby reducing losses after fraud is committed. Doug Claire, Fair Isaac vice president, fraud product management, said in a statement that fraudulent activity is increasingly found to originate inside of organizations, posing a dual threat to a financial-services firm's balance sheet and its reputation. "Most internal fraud starts small, and many schemes are perpetrated by long-term employees over a period of years," Mike Williams, Memento vice president of business development, tells CardLine. "To block these fraud schemes, internal fraud-fighting tools must detect unfamiliar patterns, policy violations and code-of-conduct violations at an early stage." Memento also serves as a clearinghouse of information on thousands of fraud schemes employees attempt. "New internal fraud schemes are attempted every day, and institutions need to block them before they become entrenched," Williams says. Fair Isaac is based in Minneapolis.

Dynamic Card Solutions, which developed the CardWizard technology that enables banks to instantly issue unembossed credit and debit cards at branches, today announced it is offering Collis B.V.'s EMV Personalization Validation Tool to its international customers. The validation software analyzes and validates CardWizard software before a Dynamic Card Solutions customer uses it, the Englewood, Colo.-based company says. The validation software "goes in with the pilot to make sure [CardWizard] works and is interoperable before they do full rollout to other branches," a Dynamic Card Solutions spokesperson tells CardLine. Collis is a Dutch information-technology and consulting company with U.S. headquarters in Arden Hills, Minn.