New federal regulations that would restrict credit card issuers' ability to re-price card interest rates could improve the master trust performance of credit card asset-backed securities, Moody's Investors Group. said in a report this week. Average excess spread, a key performance indicator for card issuers' securitized master trusts, has fallen steadily this year for most large issuers. In its bi-weekly Credit Card Statement, Moody's said that rules finalized last year by the Federal Reserve and other regulators, which go into effect in July 2010, likely will force issuers to tighten card underwriting standards, which will reduce charge-offs and boost overall credit quality. When the rules take effect, issuers will be prohibited from raising interest rates on cardholders' existing debt, except in certain circumstances. Trust yields could improve more immediately, as major issuers rush to raise customers' interest rates before the new rules kick in. Bank of America Corp. is among the issuers that disclosed in recent weeks they are raising some customers' interest rates (CardLine, 4/13). "A number of large issuers recently raised card customers' interest rates, and whether this is due to economic conditions or anticipation of future constraints to raising interest rates, it means that we may soon see a positive effect on master-trust yield," William Black, a senior vice president in Moody's asset finance group, tells CardLine. "The card industry will probably get more aggressive with risk management policies, cutting credit lines and tightening borrower requirements, which means we're likely to see fewer charge-offs and better trust performance," adds Black. But Srini Venkateswaran, a partner in the financial industry group at consultancy A.T. Kearney, tells CardLine he believes the Fed rules are more likely to have a negative long-term effect on securitized master trusts. "Issuers may do a 'Hail Mary' pass right now to raise interest rate before the door closes, and they may tighten overall underwriting standards, but constraints on raising interest rates are going to cause problems. The ability to dynamically reprice credit cards is one of the keys to credit card profitability and master trust performance," he says.

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