Even as the Federal Reserve finalizes terms of its Term Asset-Backed Securities Loan Facility, or TALF, there's increasing skepticism about the $200 billion program's likely impact.

TALF is an effort to expand lending to U.S. consumers; companies have cut back on consumer loans amid a freeze in the debt market where these borrowings have been traditionally financed.

The Obama administration has said it expects to expand the TALF to as much as $1 trillion. TALF seeks to invigorate student lending, auto loans, credit card lending, and (in the administration's expansion) also include residential and commercial mortgages. In this $4 trillion market, loans backed by these different types of consumer credit are packaged and traded; by packaging and selling the credit, companies free up funds to make new loans.

But critics say that the program's eligibility requirements and costs to investors will likely limit its relevance. This would thwart its purpose of thawing the market for securities backed by consumer loans.

Through the program, being overseen by the New York Fed, $200 billion of loans would be extended to investors to purchase securities backed by consumer debt, including student and auto loans and credit-card payments. The premise is that by spurring investors to buy these out-of-favor securities, companies -- ranging from American Express Co. (AXP) to Sallie Mae (SLM) and GMAC LLC -- that issue these kinds of credit will be encouraged to lend to consumers. The program's start date is expected to be announced soon.

Under this program, one of numerous efforts by the government to get credit flowing through the economy, the loans would be made in exchange for collateral made up of the highest-rated securities of loans backed by the different types of consumer credit.

In addition, the Fed will collect a fee in the form of a discount on the collateral. For instance, under the plan, the Fed would discount by 10% a security maturing in two to three years and backed by a pool of private student loans.

These conditions will likely restrict TALF's popularity, analysts say, as they either eliminate certain kinds of consumer loans or make it an expensive proposition for users.

"I don't see it as being a huge boon to credit-card and subprime auto loans because their quality is heavily impacted right now by deteriorating consumer credit," says Scott Valentin, an analyst at FBR Capital Markets.

The highest credit-rating requirement, for instance, makes it possible for just under a quarter - or $18 billion - of asset-backed securities, made up of auto loans and leases and issued in 2007, to be eligible for this program, according to the American Financial Services Association, a trade group.

Separately, TALF may not appeal to credit-card issuers because the bulk of them are bank holding companies that have access to cheaper sources of federal funds.

"Publicly traded companies don't need to tap TALF," says Donald Fandetti, an analyst at Citigroup Inc. Furthermore, "it's unclear that TALF will revive the securitization business because of the aversion to this market," says Fandetti.

Another concern is that the focus on only the highest-rated securities leaves out lower-rated investments, which are under the most stress as they are the first to be affected by delinquencies.

FBR's Valentin says he's concerned investors will only buy the highest-rated securities eligible for TALF, and continue to shy away from lower-rated asset-backed securities.

This would leave companies with little choice but to keep the riskier securities on their balance sheet, thus blocking funds that they could have used to extend credit to consumers.

Still, the plan does have its benefits, particularly for companies that lack a bank charter.

Sallie Mae (SLM), a large lender of student loans, said in December that it has "ample assets" that would qualify for the TALF facility.

It expects this facility "to be substantially less expensive" than its borrowings from banks, said Al Lord, Sallie's chief executive officer, speaking at a Goldman Sachs Financial Services Conference in December. At the time, the company estimated about $23 billion of its assets would be eligible for the TALF program. A Sallie Mae spokeswoman was unavailable for comment.

-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com; and Anusha Shrivastava, 201-938-2371; anusha.shrivastava@dowjones.com