Nov. 12 (Bloomberg) -- The U.S. Treasury and Federal Reserve are considering a new plan to ease strains in the markets for automobile purchases, student loans and credit-card debt as the government widens the scope of its financial-rescue efforts.

``We're in the process of working with the Fed to design it,'' Treasury Secretary Henry Paulson said at a press briefing in Washington today. ``This market is currently in distress, costs of funding have skyrocketed and new issue activity has come to a halt,'' he said, referring to securities backed by assets such as auto, student and credit-card loans.

The program may be the most explicit move by Paulson and Fed Chairman Ben S. Bernanke to support consumer, non-housing lending, after previous actions aimed at mortgages and corporate borrowing. Paulson indicated that the government would be taking on risk from the debt.

``They're talking about something that consumers can respond to more directly'' than the injections of capital into financial companies, Martin Feldstein, the Harvard University economist and former head of the National Bureau of Economic Research, said in a Bloomberg Television interview.

Fed spokeswoman Michelle Smith had no further comment on the new loan plan.

The Treasury has already been considering taking stakes in nonbank financial companies, according to people briefed on the matter. Companies that could be helped include General Electric Co.'s GE Capital unit and CIT Group Inc., two people said last week.

Currently, there is $356.3 billion in credit card asset- backed debt outstanding, with $256.3 billion in student-loan securities and $199 billion in auto loan borrowing, according to the Securities Industry and Financial Markets Association.

`Broad Impact'

``Specific details need to be released to gauge the broad impact'' of the proposed program, said Craig Leonard, head of the structured product syndicate at Barclays Plc in New York. At the same time, any support offered by the government would be a help, he predicted.

The new program may resemble the structure of the Fed's Commercial Paper Funding Facility, with Treasury seed money and an intermediary company to buy assets, said JPMorgan Chase & Co. economist Michael Feroli, a former Fed researcher.

In the CPFF, which began last month and purchased $244.6 billion of the short-term debt through Nov. 5, the Fed set up a limited-liability company to buy the assets. The Fed is funding the facility at the target federal funds rate, currently 1 percent, and Treasury provided a $50 billion deposit.

Seize Assets

Paulson said lending through the new program would be on a non-recourse basis, meaning the government wouldn't have rights to seize other assets should a borrower default.

It wouldn't be the only Fed program with non-recourse loans. One is the $29 billion loan to a Delaware company to purchase a $30 billion portfolio of Bear Stearns Cos. assets, which eased the collapsed investment bank's sale to JPMorgan Chase & Co. this year.

Another is the Fed's program that lends to banks to buy asset-based commercial paper from money-market mutual funds. The facility, aimed at ensuring the funds have cash to meet investor redemptions, began in September and had $85.1 billion in loans outstanding as of Nov. 5.

Credit-card companies were shut out of the market for bonds backed by customer payments in October for the first time in more than 15 years, Wachovia Corp. data showed. Issuers sold $17.1 billion of the debt in October 2007.

Top-rated credit card-backed securities maturing in three years traded at a premium of 500 basis points over the London interbank offered rate, or Libor, last week, up 25 basis points over the previous week, JPMorgan Chase & Co. data show. The debt was trading at 50 basis points more than Libor in January.

`Dramatic Fall'

``I doubt that this is going to have a big offset to the really dramatic fall in consumer spending that we're going to see over the coming year,'' in part because of a $10 trillion slump in home values, Feldstein said of the new lending program.

Ford Motor Co., GMAC LLC and Chrysler LLC were shut out of the market for bonds backed by auto loans for the fifth straight month in October. Sales of auto bonds slumped to $500 million, compared with $9 billion in October 2007, according to Merrill Lynch & Co. data. The cost to sell the debt also surged to record highs over benchmark rates on concern borrowers won't be able to make loan payments amid job losses and falling property values.

Democratic lawmakers, led by House Speaker Nancy Pelosi of California, are pushing for more direct aid for automakers, including access to the $700 billion bailout program enacted last month. The urgency of the car companies' position was highlighted by a Nov. 7 warning by GM that it may not have enough cash to stay in business this year.

More Aid

House Financial Services Committee Chairman Barney Frank proposed giving $25 billion in additional aid to GM, Ford and Chrysler. He told reporters today that legislation is needed to authorize the Treasury to put money into the automakers.

Paulson warned that any effort to help auto firms shouldn't just keep them from bankruptcy.

``Any solution has got to be leading to long-term viability,'' the Treasury chief said. He said one option for Congress is to amend separate legislation approved in September that awarded $25 billion of aid to build more-efficient vehicles.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Sarah Mulholland in New York at smulholland3@bloomberg.net

Last Updated: November 12, 2008 15:21 EST