Consumer Payment Card News

BJ's/BNB MasterCard Settle

The fallout between Beneficial National Bank and BJ’s Wholesale Club over BNB’s decision to cancel unprofitable MasterCard accounts ended Wednesday afternoon after both parties reached an out-of-court settlement. BNB USA spent the better part of a year seeking adjustments to the ‘BJ’s Wholesale Club MasterCard’ to stem program losses largely linked to non-revolving cardholders. The negotiations broke down last month with BNB filing suit Sept 19 and going forward with its decision not renew 12,000 accounts expiring Sept 30. BJ’s responded with its own suit Sept 24. Both lawsuits will be dismissed and the canceled accounts will effectively be reinstated. Other terms of yesterday’s settlement include the payment to BNB of $1.3 million and BJ’s commitment to share in the maintenance cost of the program until the expiration of the contract Aug 1, 2000. Beneficial agreed not to terminate accounts of low-interest-paying or non-revolving accounts in good standing. Both parties also agreed to institute an annual usage fee of $30 for such cardholders, subject to an annual review of finance charges paid during the previous 12 months. Other features of the program remain intact including the 2% rebate on BJ’s purchases and the 1% rebate on other purchases.

Beneficial National Bank USA And BJ’s Wholesale Club Settle Litigation
Beneficial National Bank USA (BNB USA) and BJ’s Wholesale Club today agreed to a settlement of the litigation between the parties. The settlement, which enables BNB USA to make necessary adjustments in the BJ’s MasterCard program, includes a $1.3 million payment from BJ’s to the bank.

Beneficial National Bank USA filed suit Sept. 19 in Delaware because BJ’s was unwilling to make adjustments to a program that was resulting in substantial losses for the bank and was forcing the bank not to reissue certain credit cards upon expiration. Among other things, the bank said BJ’s was acting in bad faith with respect to the matter. Subsequently, BJ’s Wholesale Club filed suit against BNB USA in Massachusetts seeking a preliminary injunction, which was denied.

“It is unfortunate that the only way BJ’s would agree to these needed adjustments to the program was for BNB USA to file a lawsuit. We attempted for the better part of a year to achieve a fair and equitable balance to the program in a way that would not cause the non-renewal of credit cards to good customers whose accounts were coming up for renewal. This settlement makes the necessary adjustments to the program going forward, and enables us to offer reinstatement to the 12,000 customers whose accounts were not renewed on October 1,” said Kevin T. Peck, general counsel to BNB USA. “It is regrettable that BJ’s Wholesale Club customers were inconvenienced as a result of BJ’s actions.”

Amendments to the program include the ability to charge a fee annually to certain accounts, existing as of year-end 1997, that are resulting in losses to BNB USA. For new accounts, customers will have a nine-month free trial period and will be charged a fee only if they do not accrue at least $30 in finance charges during that period and choose to keep the card. Thereafter, accounts will be charged a fee, based on an annual review of finance charges during the previous 12-month period.

“This settlement allows us to continue to offer a BJ’s MasterCard to BJ’s customers, with the popular accompanying rebates known as BJ’s Bucks, while enabling us to bring the terms of our program into line with current industry practices. Amendments made to the program will help us stem the millions of dollars of losses that BNB USA has been sustaining from this program due to contract restrictions,” said Peck. “BNB USA is dedicated to providing credit to consumers, enabling them to afford and conveniently purchase the products they want and need. In order to fulfill this mission over the long term, we need to make sure we provide credit programs that are economically viable.”

Beneficial National Bank USA serves more than 6 million credit card customers and is a subsidiary of Beneficial Corporation, a New York Stock Exchange-listed financial services holding company.

BJ’S Members To Be Reissued BJ’S Mastercards From Beneficial Bank
BJ’s Wholesale Club, Inc. announced today that it has reached an agreement with Beneficial National Bank USA, the issuer of the BJ’s MasterCard, to prevent the cancellation of the accounts of creditworthy BJ’s MasterCard holders who pay their bills on time and in full.

Under the terms of the agreement, BJ’s will assume a portion of Beneficial’s costs to assure customers continued access to the program. Beginning in January of 1998, Beneficial will require certain customers who pay little or no interest during the year to pay a usage fee to cover the cost of processing their transactions.

“We made this agreement to immediately stop the cancellation of accounts of BJ’s MasterCard holders. The alternative was a lengthy legal process during which Beneficial would have terminated thousands of additional Members from the program,” commented John Nugent, President and CEO of BJ’s Wholesale Club, Inc. “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.”

The agreement includes the following provisions:

— Beneficial will reissue BJ’s MasterCards to the 12,000 creditworthy BJ’s Members whose cards were canceled at the end of September 1997. During October Beneficial will be offering these Members pre-approved BJ’s MasterCards with the same credit limits they had previously.

— In the future, Beneficial will not terminate the BJ’s MasterCard accounts of customers with good credit records who pay their bills in full and on time. This includes the additional 30,000 cardholders Beneficial had earmarked to terminate.

— BJ’s will share with Beneficial the cost of maintaining the program through the beginning of August of the year 2000, the date the contract expires.

— In the first quarter of 1998, Beneficial will ask low-interest-paying and non-revolving customers to pay a $30 annual usage fee if they wish to remain in the BJ’s MasterCard program.

— The BJ’s Bucks program will continue to offer Members rebate incentives — 2% back in BJ’s Bucks for purchases made at BJ’s Clubs with the BJ’s MasterCard and 1% back for purchases made at other locations with the card. BJ’s Bucks can be used as cash at all BJ’s clubs.

On September 19, 1997, Beneficial filed a lawsuit in Delaware Superior Court seeking a declaratory judgment concerning Beneficial’s obligations under the original contract. BJ’s filed a lawsuit against Beneficial on September 24, 1997, asserting that Beneficial’s cancellation of customer accounts was a breach of its contract with BJ’s. Beneficial maintained it was canceling the accounts of these members because Beneficial receives no finance charges from them. On September 26, 1997, a Massachusetts Superior Court denied BJ’s request for a preliminary injunction against Beneficial that sought to prevent them from canceling the accounts of 42,000 creditworthy BJ’s MasterCard holders. The agreement announced today will dismiss these lawsuits.

In addition to honoring the BJ’s MasterCard, BJ’s Members may pay with VISA, MasterCard, Novus, Discover, checks and cash.

Headquartered in Natick, Massachusetts, BJ’s Wholesale Club, Inc. is a leading operator of warehouse clubs in the eastern United States, with 84 clubs in the chain. In 1996, sales totaled $2.9 billion. BJ’s common stock is listed on the New York Stock Exchange under the symbol “BJ.”

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