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Behind the Bank of America Announcement

|Includes: Bank of America Corporation (BAC)

Recently, Bank of America (BAC) announced that it would stop raising interest rates on the credit cards of its existing customer base.  This news comes ahead of the February 22nd deadline mandated in the Credit CARD Act, and is certainly a step in the right direction.  However, there is an issue that hasn’t been raised that would put this announcement into better perspective.  How much of Bank of America’s existing credit card portfolio does this news really affect?

Even after the bank has already re-priced millions of credit card customers into higher interest rates, the national media seems to be treating BofA’s (BAC) announcement as a sign that the North Carolina-based bank is falling in line with the spirit of consumer rights—that it has ended the practice of raising rates in the midst of this credit crunch.  Unfortunately, it is not at all clear what this announcement actually implies given that the media has toed the company line, and has not asked the necessary questions to put this announcement into perspective.

The key question that the media should be asking is: how many of the customers in Bank of America’s (BAC) portfolio still have a low rate that is not part of an introductory offer?  If the bank still has millions of customers below a 10% non-promotional interest rate, then this announcement has merit:  BofA’s assurance not to raise those rates matters.  If, however, there are only, say, 100,000 customers that have a low non-introductory rate, then this announcement only affects a small number of people–too small to deserve the kind of attention BofA’s announcement received. We need to know the percentage of the credit card portfolio that this news affects in order to come to conclusions about the nature of the announcement and what it means in terms of Bank of America’s position on consumer advocacy.

I don’t want to be cynical about possible good news, but my experience says that Bank of America (BAC) has already re-priced everyone that it planned to.  The announcement implies that Bank of America is making an active attempt to be pro-consumer in its operations, while in reality it’s likely that they’ve simply finished re-pricing their portfolio of credit cards.  If so, then this announcement is nothing more than an attempt to create media coverage out of standard operating procedure.  Perhaps worst of all, the media seems to be buying into the announcement, and is now providing Bank of America with much needed positive PR spin by recasting the bank as a mighty corporation that remains in touch with the needs of its customer base.

The Wall Street Journal’s article on this story, for instance, is headlined: “BofA Holds Line on Credit-Card Costs.”  The New York Times headline reads “Bank of America Makes Pledge on Credit Card Act,” while the Washington Post’s reads “Bank of America Won’t Hike Card Rates.”  Before interpreting positively or negatively with respect to the company, shouldn’t the media ask what Bank of America’s (BAC) announcement really means for its customers?  If it turns out, as I suspect, that this story is simply Bank of America trying to get some publicity after finishing the task of raising credit card rates, then the national press is doing the job of Bank of America’s public relations department, and what we’ve been reading is hype and not news.

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