Credit-Card Settlement to Reduce Yield on Securities, Fitch Says

Credit-card company agreements to reduce merchant fees and permit surcharges may make card purchases more expensive for consumers and reduce the quality of credit-card-backed security pools, according to Fitch Ratings.

Concessions to vendors will probably make credit-card purchases pricier and dissuade more creditworthy holders from making transactions, Fitch analysts led by Michael Dean wrote in a report today. The decline in volume may shift the make-up of credit-card securities pools to a higher percentage of lower- quality consumers, reducing yields by as much as 5 percent, the New York-based ratings agency said.

“With less incentive to charge purchases, high-quality cardholders that pay their balances in full each month could become a smaller proportion of the collateral pools,” Dean wrote. “This could result in performance issues as more receivables are associated with cardholders who carry balances and tend to be of lower credit quality.”

Dropping yields may be offset by an increase in interest payments, according to Dean.

Credit-card companies agreed last week to pay $6.05 billion to merchants, trim the fees vendors have to pay on transactions for eight months and allow extra charges on credit-card purchases in states where it is legal, according to the report.

The terms of the settlement may be altered based on the outcome of a challenge from the National Association of Convenience Stores seeking to secure greater vendor control over credit-card transactions, Dean wrote.

To contact the reporter on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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