Treasury, Fed Said to Unveil Plan to Bolster Consumer Financing

By Robert Schmidt and Scott Lanman

Nov. 24 (Bloomberg) -- The U.S. Treasury and Federal Reserve will unveil as soon as tomorrow a lending program to shore up the consumer-finance market, using money from the government’s $700 billion rescue, two people familiar with the effort said.

The Treasury and the Fed will help fund new loans packaged into securities for sale to investors, the people said. Treasury Secretary Henry Paulson, who scheduled a press conference for tomorrow, said two weeks ago that he wants to spur lending for automobile purchases and college education while also reducing the cost of credit-card debt.

Paulson and Fed Chairman Ben S. Bernanke are widening the scope of their rescue efforts after agreeing yesterday to guarantee $306 billion of Citigroup Inc.’s toxic assets. Paulson has spent most of the first half of the government’s Troubled Asset Relief Program aiding Wall Street banks, and pressure is growing in Congress to help average Americans.

“Paulson needs to be seen taking a leadership position,” said Axel Merk, president of Merk Investments LLC in Palo Alto, California. “The markets are desperately looking for guidance on the way forward.”

Senator Charles Schumer, a New York Democrat, urged the Treasury and Fed today to use the $700 billion fund to make it easier for automakers’ finance units to lend.

“It is vital that this facility be established immediately and in sufficient size to allow consumers reasonable access to credit for auto purchases,” Schumer said in a letter to Bernanke, Paulson and Neel Kashkari, the official in charge of the bailout program.

Paulson previewed the new program in a Nov. 12 speech, when he said the Treasury and Fed were “exploring the development of a potential liquidity facility for highly rated AAA asset-backed securities.” The government could use some of the bailout fund to encourage private investors to re-enter the market, he said.

“Addressing the needs of the securitization sector will help get lending going again, helping consumers and supporting the U.S. economy,” Paulson said.

Fed spokeswoman Michelle Smith declined to comment.

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net.