The federal government's latest effort to jump start the stalled credit markets conveniently helps credit card issuers, but not their ripped-off customers.
Treasury and the
on Tuesday said they will provide $200 billion in financing to investors buying a variety of consumer debt, including credit card loans. The program, called the
, or TALF, is supported by $20 billion in credit protection from the $700 billion Troubled Assets Relief Program, or TARP, approved by Congress last month.
In theory, the TALF program is intended to provide liquidity to the system, allowing big pocketed investors like hedge funds to buy up debt and allow lenders will make more loans. Moreover, the government loans are non-recourse, meaning if anything happens -- if the borrower goes bust -- taxpayers are on the hook.
Not a bad deal for the lenders. They make more loans and collect more interest from borrowers, and the government shoulders the risk. But as the lenders get sweetheart deals from the government, they are playing games with their customers.
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recently informed customers -- even those in good standing -- that it would jack interest rates from 9.99% to 24.99%, according to a letter one recipient shared with
. The customers can reject the higher interest, but that means they can't charge any more on their cards and must pay off the current card debt.
You'd think a company that just received a $20 billion
from the government -- in addition to the coming TALF aid -- might be more mindful of customer service.
The TALF loans are for one year, but the Fed said it would extend the term, if necessary. The loans are also not subject to mark-to-market accounting. If you take in collateral without pricing it, you are buying it. Read between the lines -- there is no "lending" happening here.
Wouldn't it be nice if while the Federal Reserve was making all these deals to help our banks and credit card companies they forced them to do a little something for consumers? Couldn't the Fed force the banks to limit the interest rates they are charging? Force them to cap late payment fees?
Yes. The Fed could do all this and more. But the Federal Reserve is not helping taxpayers. The Federal Reserve is helping badly run banks.