BJ's settles credit card fee fiasco

Discount Store News, Nov 3, 1997

NATICK, MASS. -- BJ's

Wholesale Club made major

concessions in settling the

legal fight over its co-branded

MasterCard issued by

Beneficial National Bank

(BNB), concessions that

threaten to open a floodgate of

new credit card fees on other

co-branded cards throughout

the industry.

Another sign of the times:

AT&T, pioneer of no-fee-for-life

credit cards, has put its

Universal credit card business

on the block because of

poor earnings.

When AT&T issued the no-fee

card in 1990, it launched a

wave of other no-fee cards

from issuers who had to compete.

Now AT&T is pulling

back from its pledge to "never"

charge a fee to the 19 million

people who hold its card.

BNB said it was losing

"many millions of dollars" on

the BJ's cards held by

300,000 members.

Terms of the settlement of

suit and countersuit among

the two call for:

* BJ's to pay BNB $1.3 million

over the remaining three

years of their contract to

share expenses;

* BNB to re-issue credit

cards to 12,000 cardholders

canceled because they were

too prompt in paying off

their balances each month

and, therefore, generated no

interest income (Card holders

will have to pay a $30

annual fee to get a their

cards renewed);

* BNB to reissue cards to

30,000 other members coming up

for renewal, and they, too, will

have to pay a $30 annual fee;

* New cardholders to get a

nine-month free trial (If they

haven't accrued at least $30

in interest charges, they will

have to pay a $30 annual

card fee, and BNB will review

their accounts every 12

months to decide whether to

levy a $30 fee, based on the

amount of interest the cardholder

has paid).

A BNB spokesman declined

to speculate whether its settlement

with BJ's signals the

death knell of similar no-fee

co-branded cards. The BJ's

card is the only co-branded

card BNB issues.

On the heels of the settlement,

BJ's sent a message by

agreeing to accept the VISA

card, arch competitor of

MasterCard. BJ's now accepts

VISA, Discover, and the regular

MasterCard, as well as its

own BJ's MasterCard.

The problem stemmed from

the fact that BJ's co-branded

card was too successful. Both

parties had expected only to

issue about 150,000 cards,

but the total has been close to

300,000 and counting.

A major part of that success--and

of BNB's losses--comes

from the 2% rebate of

purchases at BJ's through

BJ's Bucks, vouchers

redeemable for future purchases

at BJ's. Cardholders

could also use the co-branded

card at other retailers but got

only a 1% rebate. BNB shoulders

the costs of the rebates.

In announcing the settlement,

BJ's president and ceo

John Nugent said in a prepared

statement, "We made

this agreement to immediately

stop the cancellation of

accounts of BJ's MasterCard

holders. BJ's feels strongly

that people who pay their

bills in full should not be

denied participation in the

BJ's MasterCard program.

"We were willing to pay

Beneficial millions of dollars

to assure that these members

would have the option to participate."

Bob Wade, vp of corporate

communications for BNB,

based in Peapack, N.J., said

the settlement modifies terms

of their contract with BJ's

and both parties dropped

their lawsuit.

"The settlement makes the

necessary adjustments to the

program going forward and

enables us to offer reinstatement

to the 12,000 customers

renewed on Oct. 1," said

Kevin Peck, general counsel

for BNB.

The settlements brings

terms of the BJ's co-branded

card "into line with current

industry practices," Peck said

in announcing the agreement

for BNB.