VARIG CARD BONDS

Standard & Poor’s placed its single-‘B’-plus rating on RG Receivables Co.
Ltd.’s $100 million 9.6% credit card-backed notes on CreditWatch with
negative implications.

The negative CreditWatch placement follows the disclosure that the
underlying generator of the transaction’s assets, Viacao Aerea
Rio-Grandense S.A. (Varig), breached an interest coverage covenant in the
first quarter of 2001 that could lead to an early amortization of the
transaction’s outstanding balance. In addition, Varig’s financial
performance in the first several months of 2001 deteriorated as a result of
the more difficult operating conditions in Brazil this year, with further
adverse results expected in the second half of 2001.

Varig’s performance has been hurt by a drop in both domestic and
international air travel in Brazil this year, as well as a significant
decline in the local currency and higher interest rates and jet fuel costs.
Although the company is attempting to cut costs, results beyond those
already realized in a similar restructuring effort in 1999 may be difficult
to achieve. Varig’s management has completed a refinancing of some
short-term debt and may derive some additional relief from the sale of a
stake in its cargo transport business, but financial flexibility
nonetheless remains limited.

The RG Receivables notes are secured by the proceeds of credit and
charge card receivables generated by the sale of airline tickets in the
U.S. to Varig customers flying between Brazil and the U.S. The transaction
is structured to capture offshore U.S. dollar-denominated payments
generated from the sale of tickets on Varig flights between Brazil and the
U.S. and between the U.S. and Tokyo, Japan.

To date, the transaction has performed well despite a challenging
operating environment in Brazil at various times over the past three years.
Cash flow coverage currently remains in excess of three times quarterly
debt service, and Varig has not yet attempted to reduce the frequency of
flights between Brazil and the U.S.-routes that are critical to the
generation of foreign charge card receipts. Moreover, the transaction
performed as designed in 1999 despite similar financial pressures and a
broad restructuring of Varig’s debt undertaken at that time with the
company’s other creditors.

Nevertheless, the CreditWatch placement reflects uncertainty
surrounding the near-term actions of investors who, given the interest
coverage covenant breach, currently have the right to accelerate the
amortization of the transaction notes. In addition, Standard & Poor’s
remains concerned that the economic outlook in Brazil over the remainder of
2001 remains challenging and could lead Varig’s management to reduce flight
frequencies to the U.S., thus, negatively impacting the transaction.
Standard & Poor’s has also noted that an early amortization of the RG
Receivables notes-whether triggered by the interest coverage covenant or
some other transaction covenant-could have a significant negative impact on
Varig’s liquidity and, consequently, its overall credit profile to which
the transaction rating is directly tied. Standard & Poor’s believes that
the transaction rating could come under near-term downward pressure from
either investor actions that accelerate the transaction’s amortization or
from a prolonged economic slowdown in Brazil that further impairs Varig’s
financial health.

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FTC & Phone Crammers

Companies that illegally “crammed” unauthorized charges for a variety of services onto consumers’ telephone bills and claimed that consumers had to pay the charges, even though they neither purchased the services nor authorized the charges, have agreed to settle Federal Trade Commission allegations that their unfair and deceptive practices violated the FTC Act and the FTC’s 900-Number Rule. The proposed settlements would: bar the defendants from illegally billing consumers in the future; require one defendant, New Century Equity Holdings Corp., Inc. to give up $350,000 in ill-gotten gains; and require the other defendants, Enhanced Services Billing, Inc. (ESBI), and Billing Concepts, Inc. (BCI), to provide notices to consumers that their bills may contain unauthorized charges for website design and other enhanced services, to inform consumers how to obtain a refund, and to provide refunds. ESBI and BCI each served as “billing aggregators.” Billing aggregators open the gate to the telephone billing and collection system for vendors, and act as intermediaries between the vendors and the local phone companies, contracting with the local phone companies to have charges on behalf of their client vendors placed on consumers’ telephone bills and to have the local telephone companies collect those charges from consumers. Once the charges are collected by the phone companies, the billing aggregators, after taking their fee, pass the revenues back to their client vendors.

Although billing aggregators’ services allow consumers to use their phone services as a payment mechanism, they are also susceptible to abuse if the billing aggregators fail to adequately police the practices of vendors who may engage in fraudulent billing.ESBI and BCI were subsidiaries of New Century Equity Holdings Corp., formerly known as Billing Concepts Corporation from 1996 until October 23, 2000. ESBI and BCI are currently owned by Platinum Equity, L.L.C. Although not a defendant, Platinum Equity has agreed to comply with the provisions of the settlement with its subsidiaries ESBI and BCI to the extent that Platinum Equity or its divisions, affiliates, successors or assigns bill consumers for any “enhanced service” – basically, anything other than common carrier telecommunications services – on consumers’ telephone bills. The FTC’s complaint, filed with the settlements, charged: that ESBI falsely represented that consumers were legally obligated to pay charges on their telephone bills for web sites and other items they had not ordered or authorized others to order for them; that ESBI unfairly attempted to collect – or arranged for local phone companies to collect – payment of charges from consumers for web sites and other items they had not ordered and that consumers were unable to prevent ESBI from causing such unauthorized charges to appear on their phone bills; that BCI falsely represented that consumers were legally obligated to pay charges on their telephone bills for an activation fee and monthly minimum fees for a calling card, when the consumers had neither asked for the card nor authorized anyone else to ask for it on their behalf; and that BCI unfairly attempted to collect – or arranged for local phone companies to collect – payment of charges for an activation fee and monthly minimum fees for a calling card that consumers had not ordered and that the consumers were unable to prevent BCI from causing such unauthorized charges to appear on their phone bills. The complaint also alleged that, acting as a billing aggregator for vendors of 900-Number services, BCI violated the FTC’s 900-Number Rule. According to the complaint, many consumers contacted BCI to complain that 900-number charges on their phone bills were not incurred by anyone calling from the consumers’ phone, and offered convincing evidence to support that assertion. Yet, in such cases, the complaint alleges, BCI failed to perform a reasonable investigation to determine whether the charges were valid, and continued to attempt to collect. The 900-Number Rule prohibits a company from attempting to collect any disputed amount until the company has completed an investigation or refunded the charges.The proposed settlements with the defendants bar future violations of the 900-Number Rule. They would also bar the defendants from placing charges on a consumer’s phone bill when they “know or should know” the consumer did not authorize the charge; from making misrepresentations, in connection with the provision of customer service, that consumers owe money for telephone-billed goods or services they did not authorize; prohibit them from submitting billing records from vendors they “know or should know” do not obtain express authorization for each telephone-billed good or service; and require that when the defendants submit information to local phone companies to cause charges to appear on consumers’ phone bills, they must provide the phone companies with an accurate description of the goods or services being billed, and a toll-free complaint number. The proposed settlement with New Century requires the company to turn over $350,000 in ill-gotten gains. The proposed settlement with defendants ESBI and BCI also requires them to provide notices to consumers who receive bills for enhanced services after the date of the Order, informing them that their bills may contain unauthorized charges, that the FTC has entered into a settlement with the defendants, and providing a toll-free number (1-800-555-ESBI), an e-mail address and a street address, any of which consumers can use to request refunds. The defendants also would be required to inform consumers about the terms and conditions for obtaining a refund, and to provide refunds. Both proposed settlements also contain record keeping provisions to allow the FTC to monitor compliance.The Commission has set up a hotline for consumers to call with questions about the case or the refund procedure. It is (202) 326-3060.The Commission vote to refer the complaint and settlements to the Department of Justice for filing was 4-0, with Chairman Timothy J. Muris not participating. The complaint and proposed consent judgments were filed in U.S. District Court for the District of Columbia on August 1,2001 by the Department of Justice at the request of the FTC. The proposed settlements are subject to court approval.

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I-BANKING

Datamonitor, a premium business information company specializing in industry analysis, predicts the size of the eBanking technology market to almost double over the next four years, growing from $2.7 bn in 2001 to nearly $5 bn by 2005 in Europe. Moreover, 75 million Europeans will be banking on the Internet by 2005: equivalent to over 2.5 times the combined population of every capital city in the EU. The PC will remain the most popular online channel for banking services, followed by wireless devices and interactive digital television.

The report, eBanking Technology in Europe 2001, forecasts a tripling of the number of customers using PC-based Internet banking services over the next five years, from 23 million at the end of 2000 to over 75 million in 2005. The combined population of the capital cities of all the EU member states is currently estimated at around just 28 million.

Certainly the last few months have not been easy ones for Internet banking in Europe, with standalone ventures such as ABN-Amro s MoneyPlanet and SEB s planned UK expansion being withdrawn. The saturation of many European markets and the negative outlook for Internet investment has made all but the most differentiated standalone Internet propositions unsustainable.

However, Datamonitor s research shows that, in spite of this, banks are being successful in migrating their customers onto the Internet, giving them plenty of reasons to continue investing strongly in eBanking services in order to support this growth.

Datamonitor is bullish about the future uptake of mobile phone banking. While initial uptake of WAP-based services has been limited, the advent of 2.5 and 3G networks will allow for richer banking services to be delivered via the wireless channel. As a result, Datamonitor forecasts almost 35 million customers banking on WAP by 2005.

Siân Jones, eFinancial services analyst at Datamonitor, comments:

In spite of some recent setbacks, eBanking is still the strongest growth story in European retail banking. The availability of more and more value-added services, such as account aggregation and online advice, will going to continue driving strong consumer uptake of eBanking services. The challenge for banks now will be to hang on to these customers through using advanced personalization and one-to-one marketing technologies to build up loyalty.

We are particularly excited by the potential of mobile devices. Although there has been some initial customer disappointment in WAP services, we firmly believe that, when higher bandwidth networks and suitable handsets become widely available, mobile banking will become a killer mCommerce application. Our research has shown that banks are very committed to investment in this area: after all, mobile phones are ideal for receiving timely financial information. These kind of services are highly sticky should also help build customer loyalty.

Datamonitor plc is a premium business information company specializing in industry analysis. We help our clients, 5000 of the world s leading companies, to address complex strategic issues. Through our proprietary databases and wealth of expertise, we provide clients with unbiased expert analysis and in-depth forecasts for six industry sectors: Automotive, Consumer Markets, Energy, Financial Services, Healthcare, Technology. Datamonitor maintains its headquarters in London and has regional offices in New York, Frankfurt, and Hong Kong.

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Online Security

A new report from Gartner found that 86% of online American adults are very concerned about the security of bank and brokerage account numbers when doing online transactions. Almost as many, 83%, expressed the same concerns about the security of their Social Security and credit card numbers. Additionally, 70% are very concerned about the security of their personal information, including their income and assets. The report also indicates that approximately 60% of online adults say security and privacy concerns stop them from doing business on the Web. In addition, more than 50% of those who buy on the Web say they’ll enter their information, but admit they are not comfortable about it. The report is based on results from two Gartner consumer surveys of more than 7,000 online adults 18 years and older in the United States.

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DIGITAL SIGS

Identrus LLC, the leading standard of trust in global e-commerce, today
announced that the 50th financial institution has joined its global
network, an important milestone that demonstrates the company’s continued
growth and proven ability to leverage the trusted relationships financial
institutions enjoy with their corporate customers. Utilizing these
relationships, along with Identrus’ leading trust services technology, the
company has established the premier foundation through which secure
business-to-business e-commerce will be conducted.

Standard Chartered Bank, Chohung Housing Bank of Korea, and Korean
Exchange Bank have signed with Identrus in the last few weeks, joining 47
other financial institutions previously announced spanning 133 countries in
the two-year-old system. Identrus’ original founding members include major
financial institutions such as ABN AMRO, Bank of America, Bankers Trust
(since merged with Deutsche Bank), Barclays, Chase Manhattan, Citigroup,
Deutsche Bank and HypoVereinsbank.

“Our corporate customers are eager to realize the efficiencies, lower
costs and increased revenue opportunities arising from secure
business-to-business Internet commerce,” said Eric Steeghs, global head of
business development, Global Transaction Services, ABN AMRO. “With the
advances Identrus is making in helping to speed additional bank
participation, such as providing packaged implementation options and
e-payment and warranty solutions, we believe the next 50 financial
institutions will come to Identrus even more quickly than the first –
exponentially increasing the value of the entire Identrus system for our
customers.”

As Identrus Certificate Authorities, financial institutions in the
Identrus system issue their corporate customers secure electronic
identities called Identrus Global IDs. These digital certificates give
trading partners a single “e-passport” for business-to-business
communications and transactions, not just financial services.
“Given the scope of our undertaking – launching a global trust system
with extremely sophisticated technical, legal and business underpinnings –
we’re delighted to grow our membership so significantly already,” said Guy
Tallent, Identrus president and CEO. “Identrus has had a great first two
years. We look forward to doubling our success in the coming months.”
The Identrus system is the only global, multivendor public key
infrastructure (PKI) for digital certificates and signatures spanning all
business initiatives. With Identrus, trading partners can conclusively
identify one another on the Internet, prove their communications didn’t
change in transit, and automatically compile an auditable record of their
transactions.

“The unique capabilities of PKI to secure business-to-business
Internet commerce are well documented, and Identrus provides deep financial
institution backing to bring these capabilities to bear in business,” said
Meridien Research analyst Jeanne Capachin. “Identrus has the potential to
bring a ubiquitous presence and mature trust infrastructure to PKI.”

About Identrus

Identrus LLC is the leading standard of trust in global b2b
e-commerce. As the Internet’s only global trust system, Identrus allows
companies to transact with one another with certainty and effectively
mitigate e-commerce risks by leveraging their trusted relationship with
their financial institution. Identrus also eliminates the time, cost and
complexity of building trading relationships with customers and suppliers
around the globe. The world’s most prominent financial institutions and
technology companies are deploying a growing number of applications for
secure e-mail, e-marketplaces, international trade, contract signing,
online payments, commercial banking and more on the open Identrus
infrastructure. For more information, please visit www.identrus.com

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Dual Card Apps

Household also announced Monday it is expanding its credit card program with Rooms To Go. Under terms of the partnership, customers who apply for a Rooms To Go credit card at any of the retailer’s 70 U.S. stores will have the option to simultaneously apply for a Household Bank MasterCard. Household has been the principal issuer of the Rooms To Go branded retail credit card since 1994, and it expects to begin offering the dual credit card applications to Rooms to Go customers by the end of this year. Rooms To Go has become America’s fastest growing furniture company, with showrooms in only 5 southeastern states and Texas. Household’s retail services business includes 220 merchants with 48,000 retail locations in the U.S., U.K. and Canada producing more than 3.6 billion private label credit card transactions annually.

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GOLDFISH CARD

Household International and Centrica announced this week an agreement of
terms for the settlement
of litigation regarding their joint credit card program. Household, through
its United Kingdom subsidiary, HFC Bank plc, and Centrica are involved in a
joint venture to market the Goldfish credit card. Centrica will acquire HFC
Bank’s entire rights and interests in the Goldfish credit card. Under the
terms of the settlement, HFC will receive a consideration of 85 million pounds
sterling (net) in excess of the nominal value of the receivables of
approximately 650 million pounds sterling.

Household and Centrica (then British Gas) entered into a credit card
alliance in 1996, involving the launch of the Goldfish card. In December of
2000, Centrica announced its intent to terminate its relationship with HFC
Bank plc when the contract expires on September 3, 2001.

HFC and Centrica will work together to ensure an orderly transfer of HFC’s
interest in the credit card, including the receivables. Both parties have
agreed to ensure that customers experience no disruption to service while the
transfer process occurs.

Both Household and Centrica believe the settlement is fair and Household
will use the proceeds of the settlement for new growth initiatives in its UK
operation.

About Household

Household’s businesses are leading providers of consumer loan, credit
card, auto finance and credit insurance products in the United States, United
Kingdom and Canada. In the United States, Household’s largest business,
founded in 1878, operates under the two oldest and most widely recognized
names in consumer finance — HFC and Beneficial. Household is also one of the
nation’s largest issuers of private-label and general-purpose credit cards,
including the GM Card and the AFL-CIO’s Union Plus card. For more
information, visit the company’s Web site at .

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Goldfish Card

Household International is selling its United Kingdom ‘Goldfish’ credit card portfolio to Centrica (formerly British Gas) for $121 million as part of a lawsuit settlement. Both firms launched the Internet-based credit card program in 1996 under a five year contract. In December, Centrica announced its intent to terminate its relationship with HFC Bank plc when the contract expires on September 3, 2001. Household claimed breach of contract after Centrica relaunched Goldfish as an Internet joint venture with Lloyds TSB. In June, the High Court ruled that Household had control of cardholder data on Goldfish’s one million customers and the right to issue them with new credit cards. Household also issues another Internet-centric credit card in the UK under the ‘Marbles’ brand according to The RAM Report ([www.ramreport.com][1]). Under terms of the settlement reached this week, Centrica will acquire HFC Bank’s entire rights and interests in the ‘Goldfish’ credit card for consideration of 85 million pounds sterling (net) in excess of the nominal value of the receivables of approximately 650 million pounds sterling.

[1]: http://www.ramreport.com

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Sub-Prime Rates

Despite overall lower credit card interest rates this year, punitive interest rates and fees among sub-prime issuers have been setting new highs. CompuCredit’s lineup of ‘Aspire VISA’ cards now carry APRs as high as 41% with $35 late fees and over-limit fees. The cards also carry 5% cash advance fees with a $2 minimum according to CardWatch ([www.cardwatch.com][1]). Atlanta-based CompuCredit now offers four versions of ‘Aspire VISA’ cards through Columbus Bank & Trust: ‘Classic’, ‘Diamond’, ‘Gold’, and ‘Platinum’. The sub-prime issuer offers cards with primary interest rates ranging from prime +8.75% with a 17% minimum, to prime +26% with a 35% minimum APR. Punitive interest rates range from 23% to 41%. At mid-year, CompuCredit has $1.7 billion in outstandings, a 42.6% increase over last year, according to CardData ([www.carddata.com][2]).

[1]: http://www.cardwatch.com
[2]: http://www.carddata.com

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Smart Card Survey

2001 The Smart Card Alliance today announced that it will undertake a survey to measure the usage of smart cards in the United States and Canada. The research will be conducted by KPMG.

‘As a strong voice for smart card adoption, the Alliance is proud to sponsor this original research that will provide the first concrete data on our industry in the 21st century. What we’re doing is establishing a benchmark,’ said Bill Randle, Chairman of the Smart Card Alliance.

The survey will ask the top ten smart card manufacturers supplying the US and Canadian markets to report on shipments according to ten specific industry categories, such as wireless, financial and retail. The initial survey will cover shipments made in 1999, 2000 and the first half of 2001. A follow-up survey covering the last half of 2001 will be made in the first quarter of 2002.

‘The US and Canadian smart card markets have experienced significant growth over the past several years’, said Dan A. Cunningham, Chairman of the Alliance’s Market Research Committee. ‘The purpose of the survey is to quantify this growth by industry, and distribute the results to our members and interested third parties.’

The survey is one of many initiatives of the Smart Card Alliance, a not-for-profit association formed earlier this year by the joining of forces of the Smart Card Forum and the Smart Card Industry Association. The goal of the Alliance is to promote the usage of smart card technology and related applications. The newly combined organization brings together all the players in the industry including leading banks and card issuers, technology firms as well as industrial and retail companies and government organizations interested in smart card development.

President and CEO of the Smart Card Alliance, Donna Farmer stated, ‘the combined resources and leadership of our new organization allow us to undertake projects like this survey, that neither predecessor organization could have done on its own.’

The results of the initial phase of the survey will be presented at the Alliance’s Annual Meeting in October 9-12th. The Alliance plans to continue the survey in 2002 and beyond to establish a well-defined trend line of smart card growth.

‘We’re excited about the opportunity to assist the Smart Card Alliance in this endeavor,’ stated Tim Harrison, a Principal in KPMG’s Information Risk Management group. ‘This survey will allow us to create a better understanding of the growth and use of smart card technology within the US and Canada over the past few years, ‘ he added.

About the Smart Card Alliance

The Smart Card Alliance is a not-for profit, multi-industry association of over 185 member firms working to accelerate the widespread acceptance of multiple application smart card technology. Through specific projects such as education programs, market research, advocacy, industry relations, and open forums the Alliance keeps its members connected to industry leaders and innovative thought. The Alliance also is the single industry voice for smart cards, leading industry discussion on the impact and value of smart cards in the U.S. More information about the Alliance is available at .

About KPMG

KPMG LLP is the accounting and tax firm that understands the needs of business in the global economy. We help our clients by devising results-oriented business strategies, providing insights that help them stay ahead of the competition and achieve market-leading results. KPMG LLP is the U.S. member firm of KPMG International. KPMG International’s member firms have more than 108,000 professionals, including 7,000 partners, in 159 countries. KPMG’s Web site is

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RPPS Partners

Citibank and Paytrust announced Monday they will join MasterCard’s ‘Remote Payment and Presentment Service’. Under this arrangement, Citibank will have access to MasterCard’s bill payment and presentment hub. With access to the MasterCard ‘RPPS’ hub, Citibank’s EBPP service, ‘Citibank Bill Manager’, which is provided through Paytrust, will be able to receive a greater number of bills electronically for presentation to its customers. RPPS provides participating financial institutions with flexibility and convenience to connect at one interface to reach multiple ‘Customer Service Providers’ and ‘Biller Service Providers’ to receive and pay bills.

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Lynk Award

Lynk Systems, Inc., a leading provider of electronic transaction processing services, has received Visa’s Service Quality Performance Award. On the heels of its 10th anniversary, Lynk has been recognized as one of Visa’s top performing processors. Lynk was selected among companies who have processed between $2 billion to $5 billion in annual Visa sales from January 2000 through December 2000.

The Visa award honors processors in three categories: lowest duplicate transaction rate, lowest assured transaction response rate and lowest authorization response time. Being recognized as the processor with the lowest duplicate transaction rate means that Lynk will minimize double charges and subsequent merchant credit and chargeback expenses, resulting in direct savings to the merchant’s bottom line.

“Visa cardholders and merchants can count on Lynk’s high level of service,” said Chuck Mann, senior vice president of Transaction Processing. “Lynk contributes to more efficient, cost-effective, and profitable card operations each time a Visa card is used at the point of sale. Lynk has always excelled on the authorization side of credit card processing, and this award is proof that our efforts to bring settlement processes in-house have been equally successful.”

The quality of service delivered to Visa cardholders and merchants is often the deciding factor in customer retention, brand loyalty and customer loyalty. The Visa Service Quality Performance Award not only acknowledges consistent, superior performance, it also emphasizes continued service quality improvement.

About Lynk.

Lynk is a proven leader in electronic payment, cash dispensing and e-commerce services. The company processes transactions initiated by credit and debit cards, checks, and other access cards from merchant point-of-sale terminals, ATMs and web sites. Lynk also provides related services such as the issuance of stored value cards that facilitate electronic funds distribution.

Lynk controls the entire processing sequence, including sales, merchant payment equipment, design and hosting of Internet store fronts, transaction authorization, capture, settlement and customer service. This “in-sourced” model facilitates a truly integrated single-source service that gives Lynk customers one-call support for all their processing needs. Lynk’s proprietary technology and comprehensive network connectivity offer customers of all sizes unsurpassed processing performance.

Founded in 1991, Lynk is located in Atlanta, Georgia and has earned recognition as one of the fastest-growing companies in America by Deloitte & Touche and Inc. magazine. For more information, please visit the company’s web site at .

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