While Spiegel’s First Consumers National Bank is pulling the plug on more than 700,000 VISA and MasterCard accounts today, the move will not affect its $2.3 billion retail credit card portfolio which includes the Eddie Bauer, Spiegel Catalog, and Newport News cards. FCNB was notified February 14th by the OCC to liquidate its bank credit card portfolio. The OCC required FCNB to stop accepting new credit card applications and stop granting credit line increases to any of its existing credit card accounts; and to notify its existing cardholders that FCNB will not accept any new charges on their accounts after April 1st. Meanwhile, Standard & Poor’s Ratings Services lowered its ratings on all classes of First Consumers Master Trusts. However, the closing of the underlying bank card accounts may have some short-term positive impact on the portfolio payment rate if higher quality obligors pay off their accounts in full or complete balance transfers. In the longer term, S&P believes it will most likely have a negative effect, resulting in adverse selection from reduced payment collections and fewer creditworthy obligors remaining in the pool. In addition, eliminating the cardholder’s ability to use the card for purchases and cash advances may also reduce the incentive to repay the loan to keep the credit line open and may lead to higher charge-offs. A slowdown in obligor repayments will likely extend the ultimate repayment period of the ABS transactions and increase the loan loss exposure period. First Consumers is the 28th largest bank credit card issuer in the USA, according to CardData ([www.carddata.com][1]), with 1,439,479 accounts and $1,059,783,754 in outstandings as of 12/31/02. (CF Library 2/22/02; 4/23/02; 8/23/02; 3/5/03)
[1]: http://www.carddata.com
