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What the BofA merger means to you
Here's a look at how Bank of America's acquisition of MBNA may affect credit card customers.
June 30, 2005: 1:53 PM EDT
By Jeanne Sahadi, CNN/Money senior writer

NEW YORK (CNN/Money) If you hold a credit card issued by Bank of America or MBNA, you may be wondering what their merger announced Thursday morning will mean for your card accounts.

"In the short-term, you're probably not going to see much of a change," said Robert McKinley, founder of CardWeb.com.

But assuming the deal closes in the fourth quarter of this year, you may start to see changes in your fees and rewards in the months thereafter.

Here's just a quick look at the merger's potential effect on consumers.

What does greater consolidation mean for cardholders? The merger will consolidate two of the top 10 issuers giving the top 10 card issuers control of nearly 90 percent of market share in the industry, up slightly from the roughly 86 percent they control now. "That's creating market power," McKinley said.

For consumers, the industry's consolidation can mean less choice in the long run, he noted.

But that's not to say that the merger will put the kibosh on competition altogether.

The credit card industry has been experiencing a slowdown in growth: total balances have been going down as cardholders have consolidated their debt, in part by borrowing against their home equity.

One way to boost growth is to acquire greater market share, which can mean issuers will continue to actively try to lure away customers from their competitors.

Will rates and fees go up? Another way to boost growth, of course, is to boost cardholders' fees and rates and reduce their perks.

"They'll only be limited by what the market can bear," McKinley said.

As it is, issuers apparently haven't felt that limited. They have been fairly aggressive in their pricing policies, pushing late fees as high as $39 and penalty rates to the 30 percent level.

At the same time they've been shortening grace periods to 20 days on average, down from about 30 days a decade ago.

Unlike big bank issuers like Citigroup and Chase, McKinley said, MBNA has not been as aggressive in instituting universal default policies. Such a policy allows the issuer to raise your rate when your credit score goes down, for reasons having nothing to do with your relationship to the card issuer.

David Robertson, publisher of the Nilson Report, a research newsletter on consumer payment systems, doesn't think the fact of the merger will result in higher pricing. That's been a trend in the industry already and it may continue. But, if anything, he said, the merged company will have the ability to give its customers the best pricing and the best rewards in the industry.

Another industry trend has been rising rates, in line with the Federal Reserve's push to increase short-term rates. And that's likely to continue, McKinley and Robertson said.

Will my cards be replaced? The branding strategy of the merged company isn't yet known. But if they do choose to replace one credit card with another, that can take as much as a year after the deal closes, McKinley said.

What should I do? If and when the deal closes, watch your mail for any notices of changes in your card's policy.

"Just pay attention," McKinley said. "Make sure you're not given a product you don't want."

Card issuers that want to make changes to your card agreement must give you at least 15 days' notice.

If the newly merged company does change the terms of your agreement and you're carrying a balance, it's been typical in the industry to give you the option of keeping your old terms, said Fritz Elmendorf, a spokesman for the Consumer Bankers Association.

Of course, there's a catch: you generally have to agree to pay your balance down and not use that card for future purchases, said Elmendorf.  Top of page

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