Treasury Secretary Geithner needs to change the rules for how our tax dollars will be used to promote the availability of credit card debt. TARP is the Troubled Assets Relief Program, where our tax dollars have been going to shore up the financial system. One piece of TARP that hasn’t been much discussed is a program starting in February 2009 to finance the purchase of securities backed by credit card debt and other non-mortgage debt. This new program is called TALF, the Term Asset Backed Securities Loan Facility.

Consumer groups, faith based groups, civil rights organizations, labor unions, and community organizations are asking why our tax dollars should be used to back credit card debt unless that debt at least has fair terms. Twenty seven groups asked Treasury Secretary Geithner to change the rules on this new taxpayer-backed credit program which is being launched in February 2009 to encourage the purchase of securitized credit card debt. Read the letter here.

We asked that all securitized consumer credit card debt whose purchase is financed through this taxpayer-backed program meet standards for fairness and truthfulness, including the new standards completed by the Federal Reserve Board late last year.

The groups are seeking these two eligibility conditions on all financing by the TALF for credit card securitization pools:

1. Compliance now with details of the rule against unfair or deceptive acts or practices for all consumer credit card debt in the pool; and

2. A specific program for cardholders to earn a reduction in penalty interest rates back to a lower standard rate after no more than six months of on-time payments for all consumer credit card debt in the pool.

The program is the Term Asset Backed Securities Loan Facility (TALF). The TALF will use the Federal Reserve Board’s credit facility power, be operated by the Federal Reserve Bank of New York, and include a special purpose vehicle which is capitalized with $20 billion in credit protection by the U.S. Treasury from TARP funds.

The $20 billion in taxpayer funds is anticipated to support a program for up to $200 billion in non-recourse loans to buyers of securities backed by non-mortgage debt, including consumer credit card debt. In other words, buyers of credit card securitizations will be able to borrow funds from the Federal Reserve Bank of New York to purchase these securitizations, with repayment from revenues from the securitized credit card debts. The U.S. taxpayer will be supporting the program by picking up losses through a subordinated loan of $20 billion in TARP funds.

Why should our tax money support loans that don’t meet basic standards of fairness? Secretary Geithner has an opportunity to impose conditions on the use of TARP money for the TALF to make sure that doesn’t happen.