The credit card sector saw a number of interesting developments during the second quarter of 2002. Arguably the most significant was the announcement by U.S. bank regulators that early amortization triggers tied to regulatory actions will no longer be permitted. To date, most bank-sponsored credit card deals have included an early amortization trigger based on the appointment of the FDIC as receiver or conservator of the sponsoring bank. Other adverse regulatory actions also sometimes appear as triggers. Regulators assert that such triggers create or exacerbate liquidity or earnings problems that led to supervisory action in the first place. The premise underlying such triggers is that operational difficulties including a deterioration of servicing are likely to accompany adverse regulatory actions such as the appointment of a receiver or conservator. However, since late May, all such triggers in bank-sponsored credit card deals are essentially null and void.
The NextCard developments