Bail-Out for Credit-Card Companies?

Nov 19, 2008

In what some critics are calling the TARP-and-switch, U.S. Treasury Secretary Henry Paulson recently announced that the Treasury Department was considering using a portion of the $700 billion Troubled Asset Relief Program (TARP)—together with along some money from outside investors—to buy credit-card auto-loan, student-loan, and other consumer debt.

With the sales of securities of these debts stalled, Paulson appears to believe that Treasury can better stimulate lending by buying the debts directly than purchasing banks’ shares and attempting to force them into extending more credit. To bolster this contention, Paulson pointed out that in recent years sales of securities has provided the funding for 40 percent of consumer loans. He also announced that lenders issued $42.5 billion worth of these types of securities in October 2007 and less than two percent of that amount in October 2008. While acknowledging that this scenario is being considered, the Treasury Department has insisted that nothing has been finalized.

NSBA firmly believes that if some portion of the TARP is used to bailout the credit-card industry such a maneuver must be accompanied by corresponding market protections for credit-card users. It is inconceivable that Congress and the Administration would use taxpayer dollars to bailout an industry that even the U.S. Federal Reserve Board has recognized engages in unfair and deceptive practices that harm American consumers and small-business owners.

Furthermore, NSBA urges Congress and the Administration to include provisions that address the small-business credit crunch in any future stimulus package. With unemployment at a 14-year high and large firms shedding thousands of jobs by the day, it would seem apparent that the sector of the American economy that actually manages to create jobs—93.5 percent of all net new jobs since 1989—should be stimulated, too. As the number of SBA 7(a) loans has plummeted 30 percent from last year, the most immediate step should be the elimination of the 7(a) program’s borrower and lender fees.