By Martin H. Bosworth
ConsumerAffairs.com
May 24, 2005
Financial giant MBNA may have to take off its rose-colored glasses. During the most recent quarter, MBNA's actual earnings fell to $31.7 million, or 2 cents a share, far short of its projection of $519.7 million, or 4 cents a share.
Most of the loss results from a restructuring program that offered early retirement to MBNA employees. The program backfired when more employees than expected took advantage of the plan, sticking MBNA with huge severance costs.
Of potentially greater long-term significant, more and more consumers -- perhaps stung by exorbitant increases in their interest rates -- are paying off their MBNA credit card debts faster than expected.
Like other banks, MBNA relies on the interest, service fees and late charges it gets from its credit cards.
According to KRB Newswire, "The higher payments reduced managed loans in the quarter more than in prior years. Additionally, the payment volumes were particularly higher on accounts with higher interest rates, which adversely impacted the Corporation's yield on managed loans."
Perhaps the passage of S.256, the Bankruptcy Reform and Consumer Protection Act, which makes it harder to resolve credit debt through bankruptcy, has scared debtors into taking care of business faster. The financial giant spent millions of dollars priming the political pump to ensure it would be able to wring the last drop of blood from its credit card customers.
Also, MBNA and other credit card issuers have recently begun raising the minimum monthly payment. Combined with higher interest rates, this may have effectively priced credit card debt out of the market for some consumers.
The moral of this story?
Paying off your credit card debt not only cleans up your balance sheet and gives you extra cash to spend and invest, it also puts a chink in the armor of the companies who've steadily tightened the noose around consumers' necks.
The consumer rush to pay off MBNA cards couldn't come at a worse time for the company, as its employee cutbacks may make it harder for the company to quickly recruit and process new credit card customers.
Call Centers Closing
MBNA has reportedly closed its call centers in the New Jersey area, and expects to put several more on the market.
Besides eliminating employees, MBNA has also been cutting back on the number of independent contractors and consultants it retains.
Such was the fate of Scott, a former MBNA contractor who was laid off in May of this year when the project his company was bidding against was canceled. "Budgetary reasons", he was told.
"They also had a personnel policy of limiting contractors to 3 years, unless they were on an ongoing project. I am not eligible to work at MBNA now for 6 months, according to their personnel policy," Scott said.
While Scott worked for MBNA, the corporation cut his pay twice while reaping a 19% net profit. "I have retaliated by not using MNBA financial instruments and by asking friends and family to also not use them for these reasons. If they can give out executive bonuses, they don't need to cut my pay."
