MBNA-Bank of America Deal Hurts Consumers
By EILEEN ALT POWELL, AP Business Writer
NEW YORK - Bank of America Corp.'s purchase of MBNA Corp. marks the latest consolidation in the credit card industry, which may translate to higher costs, fewer choices and poorer service for consumers.
The deal, expected to be completed by the end of the year, will create one of the largest credit card operations in the nation.
The combined outstanding card balances of Bank of America and MBNA of $134.8 billion as of March 31 would surpass the receivables of the top issuers, according to Robert McKinley, chief executive of CardWeb.com in Frederick, Md. The current No. 1, JPMorgan Chase & Co., had $133.4 billion in card balances as of March 31, followed by Citigroup Inc. with $115.8 billion.
And the acquisition is the third in recent months in which a stand-alone card issuer like MBNA has linked up with a major bank.
Earlier this month, Washington Mutual Inc., the nation's largest savings bank, expanded into the credit card business by buying card issuer Providian Financial Corp. In March, the reverse happened when credit card issuer Capital One Financial Corp. said it was buying the Louisiana regional bank Hibernia Corp. in an effort to expand from direct mail marketing to branch banking outlets.
Stephen Brobeck, executive director of the nonprofit Consumer Federation of America in Washington, D.C., said the latest deal contributed to growing concentration in the credit card market.
"This can't but help raise the concern that there will be less competition providing consumers with attractive rates and other (borrowing) conditions," Brobeck said.
David Balto, an antitrust attorney with Robins, Kaplan, Miller & Ciresi in Washington, D.C., believes that consumers may already be feeling the impact of the card industry's consolidation, which also has been the result of bank mergers.
He noted that the top 10 card issuers now control more than 80 percent of the market.
"As the market has become more concentrated, there's been a significant increase in fees to card holders," said Balto, who formerly served as policy director for the Federal Trade Commission.
He added: "The card industry will tell you that people have many choices. But in reality, the choices are relatively limited."
It's also an industry that is hard for new companies to break into because of high capital requirements and technology needs, he added.
Jim Lerdal, chief operating officer of Pinnacle Financial Strategies, a Houston-based firm that provides overdraft products to banks, said another concern is the hit that customer service often takes because of mergers.
He noted that Bank of America already has said the deal will result in eliminating some 6,000 jobs.
"I think we'll continue to see more movement to never having the ability to talk to a live operator and more depersonalization of service from the point of view of the consumer," Lerdal said.
On the other hand, he said, this is "truly an opportunity" for smaller banks to go after disenchanted consumers because these financial institutions can offer "personal relationships and services where somebody is not halfway around the world answering the phone."
Another consideration is that MBNA not only issued its own credit cards but also issued cards on behalf of a variety of banks, including Bank of America competitor Wachovia Corp. Wachovia, like Bank of America, is based in Charlotte, N.C.
Fitch Ratings agency in New York pointed out that MBNA's roster "does include some large banks — Wachovia for instance — that were comfortable having this arrangement with MBNA but are not likely to have this comfort with having Bank of America serve their customers."
Close Credit Accounts You Don't Need
Credit is an important part of our economy, although few creditors seem to want to use their influence for good these days. They have most Republicans and even a few Democrats wrapped around their fingers, and this year when the Dems have voted to implement measures against predatory lending, the Republicans shot them down. As such most of the financial sector's political donations go to Republicans.
If you close your accounts to credit cards that you don't need, your credit rating will go up. I ended up with a bunch of cards to get 10% shopping discounts, and I've cancelled them all. Recently, I bought some furniture and opened up a credit card at that store. The debt was owned by Citigroup, who never sent me a first invoice. A month later, I received a bill for what I owed plus $60 in interest and late fees. They actually erased the balance for me, and I closed the account. Another account I have charged me a $29 late fee for paying my $34 monthly payment late. While credit allows people to get through hard times and provides a convenient way to shop online, etc., a $60 profit in 30 days on my $800 debt is outrageous.
I've said it before and I'll say it again - go join a credit union. Their cooperative model means getting screwed by less fees, as well as gaining from better interest rates.