NEW YORK — Frontier Airlines, the latest airline to file for bankruptcy, was pushed over the brink by a problem that could spread to other carriers: credit-card troubles.

The carrier on Friday blamed its Chapter 11 bankruptcy protection on a cash squeeze caused by its credit-card processing company, which has decided to keep a larger chunk of the Denver airline’s ticket revenue.

The move ends a policy under which the processor, First Data, passed on most money from ticket sales to Frontier. The change is intended to protect First Data, which would be on the hook for ticket refunds if Frontier stops flying. Frontier plans to continue operating while in bankruptcy.

First Data’s decision represents a new threat to an industry facing jet-fuel prices that have soared 74 percent in one year; a new government focus on safety that has grounded thousands of flights in recent days; and tight competition and falling demand that, combined, have limited carriers’ ability to raise prices.

“It’s just a godawful time for this industry,” said Bob Mann, an independent airline consultant. “This illustrates the uncertainty of capital markets to a T.”

ATA Airlines, Skybus Airlines and Aloha Airlines all have filed for bankruptcy in recent weeks. Champion Air plans to shut down and MAXjet Airways went bankrupt in December. All cited some combination of high fuel prices and falling demand, among other factors.

While it’s not uncommon that banks processing airline credit-card transactions hold a certain amount of a carrier’s proceeds in their own accounts until a passenger completes his or her travel, it is unusual for a processor to suddenly change its cash-withholding policy, analysts say.

In the case of Frontier, the new requirement — known in industry speak as a holdback — was the proverbial straw that broke the camel’s back.

“We believe that we currently have adequate cash on hand to meet our operating needs,” Frontier Chief Executive Sean Menke said in a statement.

“Unfortunately, our principal credit-card processor very recently and unexpectedly informed us that, beginning on April 11, it intended to start withholding significant proceeds received from the sale of Frontier tickets.”

Such a “change in established practices” would throw a serious wrench into Frontier’s cash forecasts and business plan, Menke said. The bankruptcy filing prevents First Data from imposing the new cash-withholding requirement, he said. The airline also threatened to sue First Data.

“The terms of our agreement with Frontier Airlines are not unique; they are considered standard industry practice and terms originally agreed upon by Frontier,” First Data said in a statement.

“They do this because … they’re concerned that a carrier will use the proceeds in advance of travel occurring and then not have the funds to actually perform the travel,” said Mann, the airline consultant.

It’s not the first time credit-card companies have imposed cash-withholding requirements on airlines. Many did so in the months after the Sept. 11, 2001, terrorist attacks because of worries about the industry. Several airlines, in fact, declared bankruptcy in the years after the attacks, due to the downturn in business and by the recession earlier this decade. Strict cash-withholding requirements were a factor in Delta Air Lines’ 2005 bankruptcy.

Now analysts think most larger airlines have sufficient cash to weather the current economic downturn and spike in fuel prices. The six largest airlines — American, Delta, United, Northwest, US Airways and Continental — have a combined $20 billion in cash on their balance sheets, Mann said. Their credit-card processors won’t likely change withholding requirements unless there is a significant change in operating conditions.

It’s the smaller companies with less cash that are more at risk of facing new cash-withholding rules, analysts say.

Copyright © 2008 The Seattle Times Company

A report by the Government Accountability Office, obtained Tuesday by The Associated Press, examined spending controls across the federal government following reports of credit-card abuse at departments including Defense, Homeland Security

and Veterans Affairs.

The review of card spending at more than a dozen departments from 2005 to 2006 found that nearly 41 percent of roughly $14 billion in credit-card purchases, whether legitimate or questionable, did not follow procedure — either because they were not properly authorized or they had not been signed for by an independent third party as called for in federal rules to deter fraud.

For purchases over $2,500, nearly half — or 48 percent — were unauthorized or improperly received.

Out of a sample of purchases totaling $2.7 million, the government could not account for hundreds of laptop computers, iPods and digital cameras worth more than $1.8 million. In one case, the U.S. Army could not say what happened to computer items making up 16 server configurations, each of which cost nearly $100,000.

Agencies often could not provide the required paperwork to justify questionable purchases. Investigators also found that federal employees sometimes double-billed or improperly expensed lavish meals and Internet dating for many months without question from supervisors; the charges were often noticed only after auditors or whistle-blowers raised questions.

“Breakdowns in internal controls over the use of purchase cards leave the government highly vulnerable to fraud, waste and abuse,” investigators wrote, calling the governmentwide failure rate in enforcing controls “unacceptably high.”

“This audit demonstrates that continued vigilance over purchase card use is necessary,” the 57-page report stated.

The report calls for the General Services Administration and Office of Management and Budget, both of which help administer the government’s credit-card program, to set guidance to improve accounting for purchased items, particularly Palm Pilots, iPods and other electronic equipment that could be easily stolen.

OMB and GSA were also urged to tighten controls over convenience checks, which are a part of the credit-card program, and to remind federal employees that they will be held responsible for any items if the purchases are later deemed improper.

In response, both OMB and GSA agreed with portions of the report. But GSA administrator Lurita Doan noted the vast majority of federal employees use their cards properly and that many oversight measures already are in place. She acknowledged there is room for improvement but added that by using purchase cards the federal government saves about $1.8 billion in administrative costs each year.

“We agree that no level of abuse or misuse is acceptable,” Doan wrote.

The GAO study comes amid increasing scrutiny of purchase cards, which are used by 300,000 federal employees and are directly payable by the U.S. government.

The AP reported Sunday that VA employees last year racked up hundreds of thousands of dollars in government credit-card bills at casino and luxury hotels, movie theaters and high-end retailers such as Sharper Image. Government auditors have been investigating these and similar charges, citing past spending abuses.

In Tuesday’s report, investigators did not seek to determine the extent of fraud or waste at each agency. They cited numerous cases of questionable spending, which they said represented what could be found government-wide, including the VA.

“The purchase card is a useful tool for the government, and in no way are we suggesting it shouldn’t continue to be used widely,” said Gregory D. Kutz, GAO’s managing director of forensic audits and special investigations, in a telephone interview. “However, I would say these cases once again show that lack of internal controls cost taxpayers millions of dollars and thus continued focus is needed on improving these controls.”

Among the expenditures cited in the report:

_An Agriculture Department employee fraudulently wrote 180 convenience checks for more than $642,000 to a live-in boyfriend over a six-year period. The money was used for gambling, car and mortgage payments, dinners and retail purchases that went unnoticed until USDA’s inspector general received a tip from a whistle-blower. The employee, who pleaded guilty to embezzlement and tax fraud charges, was sentenced last year to 21 months in prison and ordered to repay the money.

_U.S. Postal Service workers separately billed more than $14,000 to government credit cards for Internet dating services and a dinner at a Ruth’s Chris Steakhouse in Orlando, Fla., for 81 people at a cost of $160 each for steaks and crab. The dinner bill also included more than 200 appetizers and more than $3,000 worth of wine and brand-name liquor such as Courvoisier, Belvedere and Johnny Walker Gold.

In the Internet dating case, a postmaster charged $1,100 over 15 months for two online services, including the Ashley Madison Agency. The expenses went unnoticed for more than a year even though he was under internal investigation for viewing pornography on a government computer. The postmaster was eventually told to repay the Internet charges but faced no disciplinary action.

_At the Pentagon, four employees purchased $77,700 in clothing and accessories at high-end clothing and sporting goods stores. The spending included more than $45,000 at Brooks Brothers and similar stores for tailor-made suits — $7,000 of which were purchased a week before Christmas. The credit-card holders said the items were for service members working at U.S. embassies with civilian attire. Pentagon rules allow purchases of civilian clothing when performing official duty, but generally only up to $860 per person.

_Justice Department and FBI employees charged $11,000 at a Ritz Carlton hotel for coffee and “light” refreshments for 50 to 70 attendees for four days, averaging about $50 per person. Seventy percent of the total conference cost of $15,000 was for the food and beverages, while audiovisual and other support services totaled only about $4,000, or 30 percent of the charges. It was not clear what action, if any, that Justice took in light of the conference expenses, which GAO deemed excessive.

_At the State Department, one credit-card holder bought $360 worth of women’s lingerie at Seduccion Boutique for use during jungle training by trainees of a drug enforcement program in Ecuador. One State Department official later agreed that the charge was questionable and stated that he would not have approved the purchase had he known about it.

“Too many government employees have viewed purchase cards as their personal line of credit,” said Sen. Norm Coleman, R-Minn., the top Republican on the Senate Homeland Security subcommittee on investigations, which requested the GAO report. “When money that was intended to pay for critical infrastructure, education and homeland security is instead being spent on iPods, lingerie and socializing, we must immediately remedy the problem.”

Sen. Carl Levin, D-Mich., who chairs the investigations subcommittee, agreed. “Although internal controls over government credit cards have improved, we still have a long way to go to stop the fraudulent use of these cards,” he said.

___

On the Net:

Government Accountability Office: http://www.gao.gov

Bangalore, Karnataka, IND, 2008-03-26 17:26:31 (IndiaPRwire.com)

The secure Obopay mobile payment solution will now allow YES BANK customers to send money from any mobile number to any mobile number instantly, either using a mobile application downloaded on their mobile phones (J2ME), or a web application having GPRS connectivity (WAP) or through the popular instant messaging services using the SMS facility. YES BANK customers now have the opportunity to transfer upto Rs 25,000 per transaction to potentially 240 million mobile users in the country using the SMS facility, so long as these users are registered with the YES BANK-Obopay Mobile Payment Solution service. Customers can instantly withdraw cash received through such transfers from over 21,000 ATM’s across the country using the YES BANK debit card.

“Together, Obopay and YES BANK are giving Indian mobile consumers power over their money no matter where they are,” said Obopay Executive Director Aditya Menon, “This service is built for today’s mobile lifestyle, making funds available to consumers anytime they need it and makes your money truly mobile in every sense. We’re excited to bring this innovative service to new and existing YES BANK customers in India”

Commenting on this Strategic Alliance, Mr. Rana Kapoor, Founder/ Managing Director & CEO, YES BANK, said “We are pleased to announce our alliance with Obopay India to relentlessly serve the growing consumer demands and enabling YES BANK customers transact anywhere, anytime. The Bank is committed to executing a concerted strategy by continuously launching innovative and secure banking channels to enhance customer satisfaction and increase focus on providing convenience and choice to our clients”.

YES BANK customers can sign up for this unique service nationally through forms available at 60 YES BANK Retail Branches and across 75 ATM’s in Mumbai and National Capital Region (NCR). Customers registering for this service by April 30, 2008 will be given a special incentive of Rs 100 by Obopay which will be credited to the customers account. The incentive will be provided in two parts - Rs 50 at the time of registration and another Rs 50 on completion of three successful transactions.

- End -

ABOUT OBOPAY

Obopay is a two-year-old US-headquartered P2P payment and remittance service provider. The pioneer in real time, cross bank, cross channel, cross operator, P2P money transfer service, Obopay currently has offices in Bangalore and Mumbai. Obopay lets consumers and businesses purchase, pay and transfer money through any mobile device.

Obopay is a pioneer in mobile person to person money transfer and remittance services, and the only service provider that operates cross-bank, cross channel and across all mobile service providers, catering to both GSM and CDMA segments. Mobile phone users can sign up with their banks to avail of the Obopay service. This service is available pan India, on any mobile phone. Obopay India is a catalyst for financial inclusion in India by providing payment services to anyone with a mobile phone. Learn more at www.obopay.co.in

ABOUT YES BANK

YES BANK, India’s new age private sector Bank, is the outcome of the professional commitment of its Founder, Rana Kapoor supported by his highly competent top management team, to establish a high quality, customer centric, service driven, private Indian Bank catering to the “Future Industries of India”.

YES BANK has adopted international best practices, the highest standards of service quality and operational excellence, and offers comprehensive banking and financial solutions to all its valued customers. A key strength and differentiating feature of YES BANK is its knowledge driven approach to banking and an unprecedented customer experience for its retail and wealth management clients.

YES BANK is steadily building corporate and institutional banking, financial markets, investment banking, corporate finance, business (SME) and transactional banking, retail banking and wealth management business lines across the country. The Bank’s constant endeavour is to provide a delightful banking experience expressed with simplicity, empathy and totality.

According to the FTC complaint, TJX, with over 2,500 stores worldwide, failed to use reasonable and appropriate security measures to prevent unauthorized access to personal information on its computer networks. An intruder exploited these failures and obtained tens of millions of credit and debit payment cards that consumers used at TJX’s stores, as well as the personal information of approximately 455,000 consumers who returned merchandise to the stores. Banks have claimed that tens of millions of dollars in fraudulent charges have been made on the cards and millions of cards have been cancelled and reissued.

Specifically, the agency charged that TJX:

• Created an unnecessary risk to personal information by storing it on, and transmitting it between and within, its various computer networks in clear text;
• Did not use readily available security measures to limit wireless access to its networks, thereby allowing an intruder to connect wirelessly to its networks without authorization;
• Did not require network administrators and others to use strong passwords or to use different passwords to access different programs, computers, and networks;
• Failed to use readily available security measures, such as firewalls, to limit access among its computers and the Internet; and
• Failed to employ sufficient measures to detect and prevent unauthorized access to computer networks or to conduct security investigations, such as patching or updating anti-virus software.

In the FTC’s action against data brokers Reed Elsevier (REI) and Seisint, the complaint alleges that REI - through its LexisNexis data broker business - and Seisint collect and store in databases information about millions of consumers, including names, current and prior addresses, dates of birth, drivers license numbers and Social Security numbers. They obtain information about consumers from credit reporting agencies and other sources, and sell products customers use online to find and retrieve the information from their databases. The companies relied on user IDs and passwords (or “user credentials”) to control customer access to consumer information in their databases.

The complaint alleges that, among other security failures, they allowed customers to use easy-to-guess passwords to access Seisint’s “Accurint” databases. The databases contained sensitive consumer information, including drivers license numbers and Social Security numbers. Identity thieves exploited these security failures, and through multiple breaches obtained access to sensitive information about at least 316,000 consumers from Accurint databases. The identity thieves used the information to activate credit cards and open new accounts, and made fraudulent purchases on the cards and new accounts. REI acquired Seisint in late 2004, and the breaches continued for at least nine months afterward, during which time REI controlled Seisint’s practices.

The agency charged that Seisint and REI:

• Failed to make Seisint user credentials hard to guess;
• Failed to require periodic changes of Seisint user credentials;
• Failed to suspend credentials after a certain number unsuccessful log-in attempts;
• Allowed Seisint customers to store their credentials in a vulnerable format in cookies on their computers;
• Failed to require Seisint customers to encrypt or protect credentials, search queries or search results in transit between customer computers and Seisint Web sites;
• Allowed customers to create new user credentials without confirming that the new credentials were created by customers rather than identity thieves;
• Permitted users to share credentials;
• Did not adequately assess the vulnerability of Seisint’s Web applications and computer network to commonly known attacks; and
• Did not implement simple, low-cost, and readily available defenses to such attacks.

The settlement with TJX requires it to establish and maintain a comprehensive security program reasonably designed to protect the security, confidentiality, and integrity of personal information it collects from or about consumers. The settlement with REI and Seisint requires them to establish and maintain comprehensive security programs to protect personal information that is in whole or part nonpublic information. The settlements require the programs to contain administrative, technical, and physical safeguards appropriate to each company’s size, the nature of its activities, and the sensitivity of the personal information it collects. Specifically, the companies must:

• Designate an employee or employees to coordinate the information security program;
• Identify internal and external risks to the security and confidentiality of personal information and assess the safeguards already in place;
• Design and implement safeguards to control the risks identified in the risk assessment and monitor their effectiveness;
• Develop reasonable steps to select and oversee service providers that handle the personal information they receive from the companies; and
• Evaluate and adjust their information security programs to reflect the results of monitoring, any material changes to their operations, or other circumstances that may impact the effectiveness of their security programs;

The settlements require the companies to retain independent, third-party security auditors to assess their security programs on a biennial basis for the next 20 years. The auditors will be required to certify that the companies’ security programs meet or exceed the requirements of the FTC’s orders and are operating with sufficient effectiveness to provide reasonable assurance that the security of consumers’ personal information is being protected.

The settlements also contain bookkeeping and record keeping provisions to allow the agency to monitor compliance with its orders.

The FTC coordinated its investigation of TJX with 39 state Attorneys General, lead by the office of the Massachusetts Attorney General, and acknowledges the invaluable assistance of the states in the agency’s investigation.

The FTC acknowledges the invaluable assistance of the Hayward, California Police Department and the REACT (Rapid Enforcement Allied Computer Team) Task Force in the agency’s investigation of Seisint and REI.

The Commission votes to accept the proposed consent agreements were 5-0. The FTC will publish an announcement regarding the agreements in the Federal Register shortly. The agreements will be subject to public comment for 30 days, beginning today and continuing through April 28, after which the Commission will decide whether to make them final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

Copies of the complaints, proposed consent agreements, and analyses of the agreements to aid in public comment are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.

MEDIA CONTACT:

Claudia Bourne Farrell
Office of Public Affairs
202-326-2181

STAFF CONTACT:

Jessica Rich
Bureau of Consumer Protection
202-326-2252

Alain Sheer
Bureau of Consumer Protection
202-326-2252 (TJX and Reed Elsevier and Seisint)

Molly Crawford
Bureau of Consumer Proteciton
202-326-2252 (TJX)

By Ross Kerber, Globe Staff  |  March 28, 2008

A massive data breach at Hannaford Brothers Cos. was caused by a “new and sophisticated” method in which software was secretly installed on servers at every one of its grocery stores, the company told Massachusetts regulators this week.

The unauthorized intrusion the company disclosed on March 17 stemmed from software that intercepted card data from customers as they paid with plastic at store checkout counters, and sent the data overseas, Hannaford’s top lawyer said in a letter sent to Attorney General Martha Coakley and Governor Deval Patrick’s Office of Consumer Affairs and Business Regulation.

The software was installed on computer servers at each of the roughly 300 stores operated by Hannaford and its partners. Hannaford did not say how the software might have been placed on so many servers, and company spokeswoman Carol Eleazer said the company continues to investigate how the software was installed and other specifics of the breach. The Secret Service, which pursues currency crimes, is conducting its own investigation.

Data security specialists say the new details show how hackers have grown more adept at penetrating weak links in the systems that connect merchants and banks. In previous breaches, such as the record-setting intrusion at TJX Cos. of Framingham, where as many as 100 million card numbers were compromised, hackers took advantage of merchants who stored customer names and card data - sometimes in violation of payment industry standards - at central locations in their computer networks.

In contrast, Hannaford says it did not store customer information. The hackers who struck Hannaford mined a stream of data that the merchant and banks were not responsible for protecting under industry rules, industry specialists said.

The Hannaford breach “was markedly more sophisticated,” said Steve Rowen, a partner at Retail Systems Research of Miami, which does consulting work for merchants.

The Hannaford breach also poses worrisome questions for the payment industry as it struggles to tighten security. Hannaford, for example, had met compliance standards set by Visa Inc. and other card companies, but that did not stop the breach.

“Just because they are compliant, it doesn’t mean they are safe,” said Graham Cluley, technology consultant for Sophos Inc., a Burlington computer security firm. Card issuers and others need to find other ways to improve security, he added.

“Clearly, consumer confidence is being shaken by this constant stream of breaches,” Cluley said.

Hannaford said in the letter that the problem potentially compromised the account numbers and expiration dates on all 4.2 million credit and debit card numbers used at its stores in six states between Dec. 7 and March 10, though the actual number taken may be smaller. Hannaford said it knows of about 2,000 cases of fraud related to the intrusion.

Hannaford’s letter was sent by its general counsel, Emily D. Dickinson.

Dickinson wrote that an “illicit and unauthorized computer program” known as “malware” was installed on the servers of each of the stores the company operates in Maine, Vermont, New Hampshire, Massachusetts, and New York, plus at stores elsewhere, including the Sweetbay chain in Florida, that use its payment systems. Hannaford and Sweetbay are owned by Belgium’s Delhaize Group.

The malware intercepted the “track 2″ data stored on the magnetic stripe of payment cards as customers used them at the checkout counter, Dickinson wrote. This track includes the card’s number and expiration date, but not the customer’s name.

The data were taken “in transit for authorization from the point of sale,” the letter states, meaning as it was transmitted from the cash register to one of the institutions that Hannaford uses to process transactions. Eleazer said these include major card networks and First Data Corp. of Denver, a major processor.

The malware on the store servers stored up records of these purchases in batches, then transmitted them to an unnamed offshore Internet service provider, the letter states. Foreign crime rings have been blamed in a number of other payment card fraud cases.

“Law enforcement officials and others report that the method of illicit acquisition is a new and sophisticated method in that it obtains data in transit during the course of the authorization process,” the letter states.

Cluley said the software could have been installed remotely. This could have been accomplished through a breach of the company’s firewall. Alternatively, the servers may not have been running the latest security patches, or may have had antivirus programs that weren’t updated. Hannaford stated in the letter that it has replaced the hardware on which the malware was installed. Cluley said that could suggest a company insider or a technician for one of its vendors could have placed the code.

Executives of Visa Inc. of San Francisco, the largest payment card company, issued a statement yesterday saying it is working with Hannaford, banks, and law enforcement.

Hannaford said in its letter that it was certified a year ago as meeting card security standards and was recertified on Feb. 27. Eleazer said that was the day Visa first notified Hannaford of unusual card activity and began its investigation. That the standards did not stop the thieves, she said, “speaks to the increasing sophistication of the criminal element that propagates these attacks,” she said.

March 31, 2008

The MIT Media Laboratory and Bank of America today announced the creation of the Center for Future Banking, a five-year collaboration to which Bank of America has committed $3-5 million annually.

“Bank of America is investing in the future of banking. Working with the MIT Media Lab provides a unique opportunity to grow banking in innovative ways that respond to evolving customer behavior, preferences, and trends,” said Anne Finucane, Chief Marketing Officer, Bank of America.

The new research center, which will be located at the Media Lab on the MIT campus, will serve as an innovation engine that will seek to transform the ways banking will be conducted in a world of rapidly changing social, economic, and information landscapes.

The Center will explore new ideas in banking by inventing technologies that reveal and leverage insights across a wide range of physical and social scales, from one-on-one customer interactions to global transactions. Researchers will address such questions as: “How can every customer be empowered with the knowledge and tools to take better control of their financial futures?” “How will banking interactions evolve as a customer’s physical and virtual worlds become completely intertwined?” and “How will social networks and mobile platforms transform customers’ banking experiences, making it easier, more convenient, and better integrated with their daily lives?”.

Frank Moss, Director of the Media Lab and holder of the Jerome Wiesner Professorship of Media Arts and Sciences, believes the Center for Future Banking represents a powerful new model by which academia and business will partner to invent the future of entire industries. According to Moss, “We are bringing together the creative, multidisciplinary research of Media Lab faculty and students with the real-world business experience and deep-domain knowledge of our Bank of America colleagues-all in a highly innovative environment that promotes unconventional thinking and risk-taking. In doing so, we hope not only to discover the principles that will transform banking in the next decade, but also to advance our basic understanding of the rapidly changing relationship between people, technology, and society in the twenty-first century.”

“Bank of America has long been recognized as a leader in creating innovative products and solutions for customers, such as our award-winning online banking, mobile banking, and Keep the Change savings program,” said Susan Faulkner, Deposits & Student Lending Executive, Bank of America. “We believe that the results of this collaboration will have long-range significance to change the face of banking as our customers know it.”

Professor Deb Roy, Chair of MIT’s academic program in Media Arts and Sciences and a pioneer in cognitive modeling, communication theory, and human-machine interaction, will serve as the Center’s Founding Director and Principal Investigator. “The Center sets the stage for potentially path-breaking research that will tap into core Media Lab capabilities and extend them in exciting new directions,” says Roy. “We will create a focus of intellectual energy that brings together researchers with radically different perspectives, including behavioral economists, social scientists, computer scientists, psychologists, designers, and others who share a passion for invention. It’s a recipe for producing unexpected new ideas that will trigger significant innovations in the world of banking.”

About the MIT Media Lab

The MIT Media Lab applies an unorthodox research approach to envision the impact of emerging technologies on everyday life-technologies that promise to fundamentally transform our most basic notions of human capabilities. Unconstrained by traditional disciplines, Lab designers, engineers, artists, and scientists work atelier-style in some 30 research groups conducting more than 400 projects that range from neuroengineering, to how children learn, to developing the city car of the future. Lab researchers foster a unique culture of learning by doing, developing technologies that empower people of all ages, from all walks of life, in all societies, to design and invent new possibilities for themselves and their communities.
More information about the MIT Media Lab may be found at www.media.mit.edu.
More information on the Center for Future Banking may be found at cfb.media.mit.edu.

About Bank of America (NYSE: BAC)

Bank of America is one of the world’s largest financial institutions, serving individual consumers, small and middle market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk-management products and services. In the United States, the company serves more than 59 million consumer and small business relationships with more than 6,100 retail banking offices, nearly 19,000 ATMs, and award-winning online banking with nearly 24 million active users. Bank of America is the No. 1 overall Small Business Administration (SBA) lender in the United States and the No. 1 SBA lender to minority-owned small businesses. The company serves clients in 175 countries and has relationships with 99 percent of the U.S. Fortune 500 companies and 83 percent of the Fortune Global 500. Member FDIC.
More information about Bank of America may be found at www.bankofamerica.com.

AP Economics Writer

It’s a Herculean task: revamping a financial regulatory system dating back to the Civil War to deal with 21st century crises imperiling the country.

Under an ambitious Bush administration plan, the Federal Reserve would take on the unwieldy role of uber cop in charge of financial market stability. Other regulatory agencies could see their influence diminished.

The proposal won’t fix the host of economic and financial problems that threatens to plunge the United States into a deep recession, but it might help guard against future troubles. It would take years and a lot of political wrangling - in Congress, on Wall Street, in statehouses and elsewhere - to implement all the changes envisioned.

Yet, the initiative, formally announced Monday, casts a fresh spotlight on the best way to protect the country from financial catastrophes in an intricate web of complex, often-changing financial products and the wide array of financial players using them in the United States and beyond. That debate probably will take center stage in the next president’s administration.

Asked if President Bush’s goal was to get the revamp approved before he leaves office, press secretary Dana Perino acknowledged the enormity of the plan. “We’ll have to see. It is a big attempt,” she said.

Democrats in Congress said the administration should be focusing its efforts on easing the country’s current woes, including providing more relief for millions of distressed homeowners clobbered by the housing collapse and credit crunch. Foreclosures have hit record highs.

“We must take steps now to provide help to families who are hurting,” said House Speaker Nancy Pelosi, D-Calif.

Senate Banking Committee Chairman Chris Dodd, D-Conn., called the administration’s proposal a “wild pitch.”

“It’s not even close to the strike zone,” Dodd said. “This is a very legitimate issue, but why bring this up today when really this had nothing to do with the current problems we’re facing?”

Democratic presidential contender Hillary Rodham Clinton was even more emphatic: “No amount of rearranging the deck chairs can hide the fact that our housing and credit markets are in crisis and they are sinking deeper every day.”

Sen. John McCain, who has wrapped up the Republican nomination, welcomed Paulson’s recommendations. “I think consolidation of the various supervisory bureaucracies is very important recognition that we are in a global economy, and transparency and closer oversight is necessary,” he said.

The plan would greatly expand the role of the Fed, created in 1913 after a series of bank panics, to oversee the stability of the entire financial system including commercial banks, investment banks, insurance companies, hedge funds, private-equity firms and others.

Rather than checking on the health of a particular organization, the Fed’s focus would be on whether a firm’s or industry’s practices pose a danger to overall financial stability, said Treasury Secretary Henry Paulson, the former head of investment giant Goldman Sachs whom Bush put in charge of the plan.

“It will have broad powers and the necessary corrective authorities to deal with deficiencies,” Paulson said.

Lyle Gramley, former Fed official and now senior economic adviser at the Stanford Washington Research Group, believes the plan isn’t clear about the Fed’s such corrective powers. “If you create a police force and don’t give them any weapons, it is going to be useless,” Gramley warned.

Others expressed concern about concentrating too much power at the Fed while also streamlining or consolidating the duties of other regulators. They feared that a safety net of checks and balances could be lost.

“The cataclysmic mistake is that if you eliminate so many ‘eyes’ that monitor the markets, and the single eye, no matter how super, misses something, then catastrophe,” said Anthony Sabino, a professor of law and business at St. John’s University.

For similar reasons, Howard Chernick, economics professor at Hunter College, said, “I would prefer not putting all my eggs in the Fed’s regulatory basket.”

The Consumer Federation of America accused the Fed of failing to heed warnings about risky mortgages that triggered the meltdown in credit markets in the first place and questioned expanding its scope. “Giving the Fed new responsibility to monitor market risks will do nothing if it is not accompanied by much broader authority for the Federal Reserve to act than this proposal provides, and even more important, by a willingness for the Federal Reserve to use the authority it has.”

At the same time, the Fed would lose daily supervision of big banks, something the Fed probably would fight to keep intact, Gramley said. Taking away that supervision is a problem because the Fed is also the lender of last resort for commercial banks, he said.

In the biggest expansion of its credit authority since the 1930s, the Fed in mid-March temporarily granted that emergency lending privilege to big investment houses. It came after the crash of the once-mighty Bear Stearns, the nation’s fifth-largest investment firm, stoked fears others could be in jeopardy.

Day-to-day banking supervision would be consolidated into one agency, compared with the current five. The Office of Thrift Supervision, which oversees savings and loans, and the Commodity Futures Trading Commission, which oversees the trading of gas, oil and other commodities, would be eliminated, with their functions merged into other agencies.

“I think it is a mistake to discard some federal agencies” because protective checks and balances could be lost, Chernick said. “A paper reorganization that is going to help must have the legal teeth and the staff behind it to regulate the industries,” he said.

Walt Lukken, acting chairman of the CFTC, warned that his agency’s expertise “may be jeopardized with the creation of a larger regulatory bureaucracy.”

The Bush administration’s creation of the Homeland Security Department, which merged 20 or so federal agencies into the new Cabinet level office, stirred turf battles, culture clashes and mission-identity crises. The new agency’s effectiveness was hobbled, critics say.

While some regulators no doubt will be fearful of losing powers, those regulated had their own concerns.

“Dismantling the thrift charter and crippling state banking charters will weaken banking in America,” said Edward Yingling, president of the American Bankers Association.

The plan, which would require congressional approval for its biggest changes, such as the Fed’s expanded authority, would alter how the government regulates thousands of businesses from the nation’s biggest banks and investment houses down to the local insurance agent and mortgage broker. It aims to overhaul a patchwork collection of sometimes overlapping regulatory jurisdictions and build a new structure that better suits the needs of the modern financial world.

Sen. Charles Schumer, D-N.Y., wanted even more regulatory consolidation, saying a “single regulator may be a better approach.”

It would create one super agency in charge of business conduct and consumer protection, performing many of the functions of the current Securities and Exchange Commission.

The plan also would ask Congress to establish a federal Mortgage Origination Commission to set recommended minimum licensing standards for mortgage brokers, many of whom now operate outside of federal regulation. And, the plan would also take a first step toward federal regulation of the insurance industry by asking Congress to establish an Office of Insurance Oversight inside the Treasury Department.

Massachusetts Secretary of the Commonwealth William F. Galvin blasted Paulson’s approach as “a disastrous backward step that would put the investor in jeopardy” because it would pre-empt state regulation of securities and insurance.

Paulson acknowledged that most of the changes will not occur until after a lengthy debate in Congress, leaving it to the next administration to deal with the biggest changes proposed by the report.

“Tearing down the existing regulatory structure and rebuilding it is an extraordinarily difficult task, involves a tremendous amount of turf battles in Washington and will be awfully difficult to solve,” Gramley said. “Proceeding in this direction will happen very, very slowly.”

By MICHAEL LIEDTKE

The Associated Press

DON EMMERT / AFP/GETTY IMAGES

The Visa logo hangs on the front of the New York Stock Exchange Tuesday — the stock-market debut for the company.

SAN FRANCISCO — Catapulted by the biggest IPO in U.S. history, Visa shares soared 28 percent in their stock-market debut Wednesday as investors bet an accelerating shift to electronic payments will enrich the world’s largest processor of credit and debit cards.

After being priced above expectations at $44 per share in an initial public offering (IPO) that raised nearly $18 billion, Visa shares finished at $56.50 on the New York Stock Exchange Wednesday. The run-up gives the San Francisco-based company a market value of about $45 billion.

“This is an exciting and historic day for Visa,” said Chairman Joseph Saunders, who received a $10.2 million bonus last year for laying the IPO groundwork.

Investors think Visa is in a lucrative position as more people rely on its electronic network to make payments instead of using cash and checks. The company is expected to milk the phenomenon to become an even bigger cash cow than it already is.

Visa generated $5.2 billion in annual revenue last year as it handled more than 44 billion transactions totaling more than $3.2 trillion. The volume puts Visa far ahead of its main rival MasterCard, whose own shares have more than quintupled from their May 2006 IPO price of $39. Mastercard finished Wednesday at $208.39.

Making Visa even more alluring to investors, the company is well-insulated from the credit problems that have scarred many of the lenders that issue the cards bearing its brand.

Unlike those lenders, Visa doesn’t carry any consumer debt on its books. It depends on transaction fees, which have been steadily rising for years, including the past two U.S. recessions in 1991 and 2001.

Since the last recession, Visa has enticed consumers to use its credit and debit cards more frequently to pay for staples like groceries, gas and even utility bills. Visa estimates about 42 percent of its transactions fall into this “nondiscretionary” category, up from 27 percent in 2000.

“Visa enjoys one of the widest economic moats that a company can desire,” Morningstar analyst Michael Kon wrote in a Wednesday research note.

Reflecting management’s confidence, Visa anticipates annual earnings growth of at least 20 percent for at least the next two years. The company got off to a fast start in its fiscal first quarter ending in December with a $424 million profit, up 70 percent from the previous year.

Visa overcame turbulent market conditions to shatter the previous U.S. record IPO of $10.6 billion raised by AT&T Wireless eight years ago, when AT&T spun off its Redmond-based cellphone business as a tracking stock.

“To sell 400 million shares at a time like this is Herculean,” said David Menlow, president of IPOfinancial.com

Investment bankers could still exercise an option to buy another 40.6 million Visa shares during the next 30 days. If that happens, Visa’s IPO will end up raising $19.7 billion before expenses.

Visa has earmarked nearly $12 billion of the IPO proceeds to buy back shares from the banks that helped build up its network over the past 50 years. The biggest chunk, about $1.36 billion, will be paid to its largest customer and shareholder, JPMorgan Chase, according to an updated breakdown filed late Wednesday.

Other major banks cashing in on Visa’s IPO include: Bank of America, National City, Citigroup, U.S. Bancorp and Wells Fargo.

The windfall comes at a propitious time, given the banking industry’s wobbly condition as billions of losses pile up from the housing market’s worst downturn since the 1930s.

Another $3 billion from the IPO is being deposited into an escrow account to cover potential liabilities in lawsuits alleging Visa conspired to stifle competition and fix prices.

Those legal problems represent one of the biggest risks to owning Visa stock, although the company’s management maintains the escrow account and contingency measures should adequately protect investors. Visa paid more than $2 billion late last year to resolve a suit with American Express, but a similar case brought by Discover Financial Services is scheduled for a Sept. 9 trial in New York.

For now, Visa is planning to trim about $300 million in expenses during the next two years to boost its operating profit margin from 37 percent.

Menlow and other analysts don’t view Visa’s blockbuster IPO as a sign that jittery investors have suddenly become more interested in taking chances on companies going public for the first time.

“This is more like an oasis in the desert,” Menlow said.

The arid conditions have produced just 22 IPOs far this year, down from 47 at the same juncture in 2007.

Copyright © 2008 The Seattle Times Company

PITTSBURGH — Valerie Reuben saw her overdraft fees hit $3,000 because of a mix up in a loan payment that was automatically withdrawn.Not only was she charged $38 each time her account was overdrawn, but additional fees for each day her account was overdrawn.She isn’t alone.A new investigative report from the government accountability office found overdraft protection fees have increased by about 11 percent.Americans are now paying billions of dollars in the fees a year.Why is it happening?Debit cards and technology are two big reasons.Overdraft fees are also increasing because checks now clear almost immediately and people are keeping a lower balance in their bank accounts which often means there is not enough money to cover the checks that are written.When customers overdraw money, banks are charging for that overdraft protection.According to professor Tom Nist of Duquesne University, the benefit of overdraft protection is that customers won’t bounce a check or payment, which could ruin their credit rating.But Nist said there are ways to protect yourself from the fees.First, tie your checking account to another bank account.Nist said, “What you can do is set up automatic coverage via access to a line of credit or a savings account that’s sitting on the sideline in the event an overdraft occurs.”He also said pay your bills using online banking.Nist said, “When you make online payments, you can actually schedule the date they come out.”Also, buffer your checking account.”Keep a couple of hundred extra dollars in the account. Don’t record it as a deposit and always have the assurance out there. I have a little more money in there than my ledger might suggest I do, ” Nist said.Make sure you always check your calculations against the bank statement in case you forgot a transaction or made a math error.And finally, if you do get an overdraft, call your bank.It might waive or reduce the fee, especially if it’s your first. Copyright 2008 by Wpxi.com