Interchange Antitrust Lawsuit is Filed

A small group of merchants are leading an antitrust class action lawsuit against the major card networks and their top issuers. The suit alleges collusive practices in setting credit card interchange fees at supra-competitive levels. The lawsuit was filed yesterday in the U.S. District Court of Connecticut. Defendants include VISA, MasterCard, Bank of America, Citibank, Bank One, Chase, Fleet, Capital One, MBNA and Wachovia. National law firm, Robins, Kaplan, Miller & Ciresi, is representing the merchant plaintiffs with CT-based Koskoff, Koskoff & Bieder acting as co-counsel. Craig Wildfang and David Balto are heading the litigation for RKMC. The law firm says that VISA and MasterCard have previously been found to have market power in the relevant markets, so the card networks and their members have the burden of proving that they have set the interchange fees at the correct competitive level. The lawsuit says that due to the networks’ market power, the USA has the highest credit card interchange fees among industrialized countries. A recent Morgan Stanley study determined that VISA and MasterCard interchange dollar volume grew to $17.4 billion last year, compared to $9.4 billion six years ago. The research revealed that the weighted average for VISA and MasterCard interchange had increased from 1.58% in 1998 to 1.75% in 2004 and will likely grow to 1.86% in 2010. (CF Library 4/6/05)

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CVS Loyalty Card Suspends Data Access

The CVS drugstore chain has shut-down Internet access to customers purchase data after a security hole was uncovered by a consumer group. The “CVS ExtraCare” loyalty card provided easy access to the database by requiring the card number, the customer’s zip code and the first three letters of the customer’s last name. The purchase information was then sent via email to the customer. The service was launched six-months ago. The data security flaw was exposed earlier this week by Consumers Against Supermarket Privacy Invasion and Numbering, or CASPIAN. CVS has issued 50 million cards in the program. CVS has 5,400 stores in 36 states and the District of Columbia. The Company says it plans to add an extra layer of security such as passwords before restarting the program.

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HSBC Acquires Bon-Ton Card Business

HSBC Retail Services has sealed a deal to acquire Bon-Ton’s private label credit card business. At the end of the first quarter, the
accounts receivable balances in the portfolio was about $300 million
compared to approximately $200 million five years ago. Under the
multi-year HSBC agreement, Bon-Ton will participate in the revenue
generated by future credit sales. Effective November 1st, Bon-Ton will cease to operate its corporate credit center and nearly all of the 84 corporate credit positions will be eliminated. The Bon-Ton
Stores operates 139 department stores and two furniture stores in 16
states from the Northeast to the Midwest under the Bon-Ton and
Elder-Beerman names. The deal is expected to close next month.

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Card Payment Rates Plummet in the UK

While charge-offs and delinquencies rose in the first quarter among UK credit card-backed securities, the monthly payment rate continued to deteriorate. The drop in Q1 MPR was driven in part by the reduced availability of free balance transfer offers. According to Fitch Rating’s “UK Credit Card Index,” the MPR on a three-month average basis was 16.5% in 1Q/05, compared with 16.7% in the previous quarter and compared to 17.3% one-year ago. Fitch says that looking back, the “MPR Index” has shown some peaks over 2004, driven by market growth, with competition for customers leading to easy and frequent availability of balance transfer offers. It appears as the product offerings settle down that the “MPR Index” is returning to the levels of early 2003. Meanwhile, a combination of staffing issues, system problems and changes in policy has contributed to the unprecedented rise in charge-off and delinquency rates across UK ABS in the first quarter. The charge-off index ended the quarter at 4.7%, up from 3.9% in December. Owing to the same issues that caused the increase in charge-offs, delinquencies also increased to 3.0% from 2.5% in the first quarter. Q1 yield increased on a three-month average basis to 18.7% from 18.5% in the last quarter. Fitch says the increase is most likely owing to a combination of higher revenue from penalty fees on delinquent accounts and portfolios maturing so that more accounts come out of their low interest teaser periods.

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Discover Spin-Off: Nothing Definitive

Morgan Stanley left the door open yesterday regarding its plans to spin-off Discover as a stand-alone public company. The Company indicated that the market environment has grown weaker over the past quarter. Yesterday, Morgan Stanley reported that Discover’s profits fell nearly 19% during the quarter ending May 31st. Nevertheless, the Company said its focus is on understanding how the spin-off will enhance overall shareholder value. MS also said it is working closely with the ratings agencies to make sure Discover will be well-positioned. MS expects a Discover spin-off to be capitalized at $4.5 to $4.7 billion. The Company says no definitive decision has been made regarding the spin-off. The upcoming departure of the MS CEO has led to speculation that the Discover deal, announced in April, may be put on hold. (CF Library 4/5/05)

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SCA to Offer a Pompanoosuc Mills Card

VT-based Pompanoosuc Mills, a furniture manufacturer, has selected Shoppers Charge Accounts to develop and administer a private label credit card program for its 11 retail locations and online store. The Pompanoosuc Mills credit card will offer cardholders special privileges, such as payment options of three months or six months interest-free from the time of purchase. SCA is a division of Hudson United Bank, a subsidiary of Hudson United Bancorp, a $7.8 billion asset company.

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LATIN AMERICA 1Q/05

MasterCard International reports that its gross dollar volume in Latin America rose 35% in the first quarter to $20.5 billion. First quarter volume in Venezuela and Peru more than doubled, while volume soared in Mexico by 41% and by 40% in Guatemala. Within the Latin America region, the number of MasterCards increased 22% to 60.2 million cards. The number of 1Q/05 transactions increased 25% to 322 million. Other countries with strong first quarter GDV growth include Barbados (+38%) and the Cayman Islands (+37%). In Mexico the number of cards increased 28% to 21.5 million. In Brazil the number of cards increased 26% to 25.9 million. In Peru the number of cards increased 171% to 510,000. In Jamaica the number of cards increased 31% to 90,000 and in Panama the number of cards increased 39% to 60,000.

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Merger of Shinhan Card Chohung Bank Delayed

The merger between Shinhan Card Co. and the credit card division of Chohung Bank has been pushed back by three months. The credit card merger was expected to be completed by the end of the fourth quarter. The new timetable is the first quarter of 2006. Shinhan Financial Group agreed to buy Chohung Bank in June 2003 from the South Korean government for 3.37 trillion won. Shinhan Bank and Chohung Bank will start their merger in the third quarter of this year.

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Exclusive Nucleus Solution for Chevron/Texaco

Dresser Wayne has partnered with Fujitsu to make the “Nucleus” POS solution the only long-term option for those retailers who prefer to lease a system from Chevron. Chevron’s Nucleus solution will be offered for purchase from Wayne for both Chevron and Texaco retailers and is installed in over 3,700 Chevron and Texaco sites. Dresser Wayne manufactures, supplies and services retail and fleet petroleum fuel dispensers, dispenser control systems, credit/debit card processing terminals, and point-of-sale systems in 75 countries. Fujitsu Transaction Solutions Inc. solutions include multi-vendor infrastructure management services, point-of-sale hardware and software, mobile devices and self service systems including U-Scan.

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FreeStar Technology Forms an Advisory Board

Helsinki-based FreeStar Technology has named the first two members of its advisory board. The first two are Donna Curry and Anders Hedin. Donna Curry has spent 20 years at Merrill Lynch as a First Vice
President in the Global Private Client Group. Anders Hedin founded Hedin Cars which is one of the largest car dealerships in Sweden with 15 different sales centers. FreeStar Technology currently processes in excess of 1,000,000 card payments per month for an established client base that comprises companies such as Finnair, Ikea, and Stockman.

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Chase Tops 500 ATMs in the Big Apple

Chase has topped 500 free ATMs in the five New York City boroughs. Yesterday, the bank announced that there will now be a Chase ATM at every Duane Reade drugstore. Duane Reade has 216 drugstores in New York City and 30 stores in Long Island, Westchester and New Jersey. As a result, Chase will now have 515 locations in New York City. In the Tri-state area Chase’s network has about 1,600 ATMs. Nationwide, Chase customers can use 6,600 ATMs in 18 states to withdraw cash, transfer funds and check account balances without usage fees. Chase also announced a “Summer Getaway Sweepstakes” for its ATM users.

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