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MBNA Turns Up the Heat

Credit Card Giant Raises Rates, Plays Hardball with Clients

By Martin H. Bosworth
ConsumerAffairs.com

April 26, 2005
MBNA's surging profits may make it popular with investors but its propensity for self-surging interest rates isn't going over so well with its cardholders.

Consumers writing to ConsumerAffairs.com complain that their MBNA interest rates have jumped from a reasonable 5.99% fixed rate to a 15.99% variable rate, from 18.99% to 26.99% and even from 7.99% to 26.99%. That unlucky customer, Kevin M. from Hamden, CT, was outraged.

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

"It's just plain robbery. I went from being able to comfortably pay my bills to an overnight crisis situation," he said.

MBNA claims to offer written advance notice any time an interest rate changes for any reason, yet consumers repeatedly claim they received no notice about their rate changes. It's only upon opening their monthly statement that they learn of the increase.

In July 2004, Jason M. of Ridgecrest, California opened his MBNA bill to find his rate had increased from 7.9% to 17.98%, "claiming that the increase was the result of information gained from my credit report and was unrelated to my payment history with their company."

When Jason contacted MBNA's customer service department, he was told that written notification had been sent out to consumers, advising them of the potential rate increase.

"I was told that the notification was mailed with my July statement. As luck would have it, my July statement was still unopened in the kitchen as I recently moved and paid my bill online. When I opened the statement there was no notification in it," he said.

Asked to comment, MBNA representatives did not return calls and e-mails.

Dale B. of Minneapolis, Minnesota received MBNA's Gold Option account, a personal installment loan with a fixed rate of five years, and a fixed payment amount. Although MBNA's Gold Option website states that "Your APR is not guaranteed for any period of time and may be changed by MBNA," Dale was nonetheless surprised to find his loan rate had jumped from 18.99% to 27.98% after applying for an auto loan.

"MBNA now sees me as a risk and has drastically increased my APR and extended the term of the loan," he stated. "I have never been late with a payment, and have not defaulted in any way with this or any other credit account that I have ... MBNA claims I received a mailing telling me about the rate increase, and that it was due to me taking on additional credit. I do not recall such a mailing."

The MBNA representative offered Dale the chance to pay the loan off in full and close the account, which he was unable to do, leaving him saddled with a 72-month installment loan at a much higher rate.

Customer Service

MBNA is generally considered the leading credit card issuer. Most other companies follow its lead. But MBNA's reputation for customer service appears to be in steep decline, judging by the complaints received by ConsumerAffairs.com.

Dutch B., from Marana, Arizona, missed a payment on his MBNA card when he moved circa October 2004. He was shocked to find that his interest rate had jumped to 25 percent, and that he owed MBNA another $112. He tried to dispute this charge but to no avil.

"In the meantime, they are phoning me all hours of the day and night, not showing up on the caller ID, then [when I call], I'm asked to wait for the next operator. The operators are very nasty, threatening, overbearing and extremely rude," he said.

Other consumers have complained of continual calls at their workplace, MBNA representatives asking co-workers for customers' cell phone numbers, and of offering deliberately false terms of rates and loans.

Jeff Stroman, of Norridgewock, Maine, a former MBNA call center employee, describes an atmosphere of constant pressure to push cards and "encouraging representatives to 'bend' the rules in order to make a sale."

"You are competing against your peers, constantly trying to outsell them. If your stats fall below a certain measure -- and they will when representatives don't (bend the truth to make a sale) -- you will be placed on probation and lose your incentive for a time no matter what your performance," he said. "If you don't improve your statistics, you will be let go."

"When the management 'team' at MBNA in Farmington was comfortable around you they joked about targeting the elderly and young adults," Stroman said in an interview.

Stroman noted the willingness of other employees to be less than truthful about interest rates in order to clear a sale and earn their incentive pay.

"It is amazing to me that I lasted there for nearly two years. I can only wonder how many hundreds of customers opened a credit card from MBNA believing the rate was 9.99%, because that's what they were told, but in reality were stuck with 19.99% or higher."

Universal Default

Even in a sluggish economy and amid reports of losses by other credit and financial companies, MBNA continues to turn a healthy profit. The company reported a gain of $432.5 million, or 33 cents per share, as its first quarter earnings this year. This was an increase from $369.9 million, or 28 cents per share, for the same period last year.

One analyst credited this to MBNA attracting "a higher class of consumer than the rest of the market," and company spokespeople said that the average MBNA customer earned over $70,000 a year. MBNA has also backed away from offering zero-percent interest loans in order to attract consumers, whereas competitors such as Capital One and Citigroup have faced rising loan defaults.

Further improving profits, MBNA was also one of the first creditors to adopt the "universal default" policy, raising the interest rates on a consumer's debt if they are late with any kind of payment on any bill, regardless of whether they pay their credit card balance on time every month.

In Jeff Stroman's words, "MBNA is so big now, and in their minds they are such 'fearless innovators,' that they are willing to be the first to use such a dragnet as 'universal default,' while Citigroup and Capital One will wait and watch to make sure they get the green light in Washington."

MBNA's continued success has earned it unrivaled clout in the political arena. As has been widely reported, it was one of the biggest financial backers of President George W. Bush's 2004 campaign, and a leading supporter of the recent tightening of bankruptcy laws.

Consumer Affairs.Com's special report on the bankruptcy legislation details how high credit card debt and inability to pay back the rapidly ballooning interest and fees often leads consumers to bankruptcy. These are the circumstances facing many credit card users, even those who have never missed a payment or used their card irresponsibly, or -- as in the case of Teresa W. from Madison, Tennessee -- never used at all.

Teresa's husband had suffered many hospitalizations, was forced to declare bankruptcy, and died, leaving her with a $12,000 debt on an MBNA card she didn't know he had. Evidently not MBNA's preferred class of customer, she was forced to deal with abusive collection agents constantly, and had her formerly low interest rate increased to 27.9% after missing two payments.

"I was a widow, no money, tired, at the point of wishing for my last breath, and now I am sending them the last of my husband's insurance death benefit of $6,000," she said in a complaint to ConsumerAffairs.com.

In fact, it is very possible that Teresa had no obligation to pay MBNA. If the credit card was in her husband's name, she had no personal obligation to pay even one dime to MBNA. The proceeds from her husband's life insurance policy were presumably hers, not his estate's.

MBNA would have a legitimate claim against her husband's estate but not against any of Teresa's personal assets. Teresa should consult an attorney, as she may be able to recover some or all of the funds in court.

Unfortunately, credit card companies and other creditors routinely demand payment from the families of deceased debtors, knowing full well that in many cases the families have no obligation whatsoever to pay any of the deceased's debts.

"It's very sad that many have died fighting for freedom in this country, only to find they can never truly be free because the corporations that supply you with food, electricity, water, they can ruin your air if they wish, poison your water, take every penny you have and reduce you to nothing," Teresa said.

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