Online fraud hobbles NextCard NextCard Inc. said Wednesday it is seeking a buyer as it cooperates with federal regulators to increase reserves for loan losses caused by bogus accounts opened on the Internet. The credit card company has hired Goldman Sachs & Co. to arrange a sale to a larger financial institution. John Hashman, chief executive, cited "newly imposed regulatory limitations on its business operations, as well as the current market environment" as motivations for a deal. NextCard said it also tightened criteria for new accounts and suspended some management programs and product strategies. The company backed off on its outlook that it expected to report profits in the fourth quarter of this year and in 2002 and 2003.
"As an additional result of discussions with the Regulators, the Company has further tightened its underwriting criteria to limit new account originations to FICO scores above 680, suspended originations of secured credit cards, and suspended or limited certain line management programs, re-pricing programs, and fee-based product strategies." ...and... "The Bank is now considered "significantly undercapitalized" under applicable federal banking regulations because its risk-based capital ratio has dropped below 6%. The Bank's Tier 1 and leverage capital ratios remain at amounts consistent with requirements for "well capitalized" banks. As a "significantly under-capitalized" institution, the Bank will be subject to Prompt Corrective Action (a "PCA") under applicable federal banking law. Under PCA provisions, the Bank must promptly submit an acceptable capital restoration plan to the OCC. In addition, the Bank is prohibited from increasing its average asset position above that established in the third quarter of 2001, will be prohibited from accepting or renewing any "brokered" deposits and must limit certain payments from the Bank to any affiliated entity. The Bank will also be subject to heightened regulatory scrutiny and prior approval requirements. Additional restrictions could be imposed on the Bank at the discretion of the OCC, without prior notice. " ...wow. Talk about a complete turn-around in strategy! They were going to be profitable at the end of this year! Now it looks like they may have been playing a little loosey-goosey with the numbers. From what I've read so far, it seems like the regulators didn't like what they saw. So, guess I'll keep our NextCards and Providian - maybe I'll finally get to be a Citibank customer! -mj
I suspect many of us that have or had the Nextcard aren't suprised by this news. Nextcard really screwed some good customers by jacking up the APR without good cause. Now they are getting what they deserve.What goes around comes around.
