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Bank of America Completes MBNA Buyout

$850 Million In Savings, 6000 Jobs Lost

By Martin H. Bosworth
ConsumerAffairs.com

January 2, 2006
Bank of America ushered in 2006 by completing its buyout of MBNA, further expanding the size of the world's No.2 bank and creating the world's largest credit card issuer. The transaction was valued at roughly $34.2 billion dollars.

MBNA America • Interest rate increases • Payoff agreements • Sales Practices • Credit protection plan • Credit line • Luring students • Pay-by-phone --- News • Bank of America Completes MBNA Buyout • Small Wonder MBNA Found Itself the Prey • Bank of America Buys MBNA • MBNA Profits Plunge • MBNA Turns Up the Heat • Supreme Court OKs MBNA's Charging Interest on Fees

Former MBNA president Bruce Hammond will now serve as president of Bank of America Card Services, overseeing the company's new plastic portfolio, and reporting to Bank of America CEO Kenneth Lewis.

The merged corporation expected to realize after-tax savings of $850 million by 2007, chiefly through eliminating 6,000 "redundant" jobs across both companies. Speculation continues that the majority of the jobs will be in MBNA's home base of Wilmington, Delaware, which could cause serious economic problems for the city and state.

MBNA has become a symbol of consumers' and activists' resentment of the credit card system. Its policies of high interest rates and fees, minimal customer service and sometimes questionable marketing symbolized for many the pitfalls of paying with plastic.

The company had scored what it thought would be a major coup by pushing for the passage of the 2005 "Bankruptcy Reform and Consumer Protection Act," legislation that drastically rewrote existing bankruptcy laws to favor creditors over debtors.

The Charlotte, NC-based Bank of America began its takeover of MBNA after the latter's profits fell by 94 percent in a single quarter, due in large part to frustrated MBNA customers paying off their credit card balances in ever-increasing numbers.

MBNA's profit shortfall led many irate stockholders to join a class action lawsuit against it, alleging that MBNA's executive board sold off their shares before dumping the faltering stock on the public, and inflated their profit results to hide the embarrassing lack of revenue.

Since beginning the takeover of MBNA, Bank of America has picked up on some of its acquisition's bad habits. These include encouraging cardholders to transfer their balances to new cards with zero-percent interest, only to hit them with constant late fees until the balance hits its maximum, and then switching the interest rate to anywhere from 17 to 32 percent.

For many Bank of America customers, the buyout will just mean business as usual, which may not be all that desirable. Take the case of Christen of Livermore, CA, who was shocked to find out Bank of America listed him as being in Chapter 7 bankruptcy, despite his having "a good job and good credit."

"They are indicating that all my payments were on time but that the account is Chapter 7 bankruptcy. This is a very adverse mark on my credit," Christen said.

"And to top it off, Bank of America never even notified me about all of this. I can never reach a person to speak with; always just voice mail. When I contact them by email I receive a brief reply which states 'Thank you for contacting Bank of America,' and that is all."

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