Finding a new flexible friend

MBNA is pulling out of Ireland and if you have one of its credit cards, it could mean the end of easy access to credit

WHILE IT IS undoubtedly a worrying time for MBNA’s 750 employees in Carrick-on-Shannon, for the company’s credit card customers the future is also uncertain.

If Bank of America goes ahead with its plan to exit the credit card market in Europe by divesting of its MBNA operations in Ireland and the UK, then the best case scenario would be if some other institution came in to run it as a going concern. However, no white knight appears to have emerged as of yet.

Already Virgin Money has withdrawn its interest from the Irish arm, while the incumbent Irish credit card providers are in no position to extend their reach any further. But, there are other contenders in the marketplace, with the UK’s Barclaycard and Spain’s Santander cited as two possibilities. Even if a sale of MBNA goes ahead it is likely to take some time, so what might the potential outcomes mean for its customers? As the country’s third largest issuer behind AIB and Bank of Ireland, many people rely on MBNA for their credit cards. After all, it’s not just MBNA customers who might be impacted by the decision to sell the company. The credit card specialist runs affinity programmes for many institutions and associations including Ryanair, EBS Building Society, One Direct, and AXA.

At present, it’s “business as usual” according to MBNA, but this is likely to change over the coming months.

Firstly, if it’s taken over, as is hoped, by a third party who runs it as a going concern, then credit card holders will likely get to keep their cards, and simply adapt to the customs and practices of the new organisation. However, whether or not the acquirer will also want to run MBNA’s affinity business remains to be seen.

The other possibility is that no buyer might be found. When Halifax announced it was to depart the Irish market last year, it initially looked for a buyer for its credit card business which had 50,000 customers. In the end the company decided to simply wind down its loan book.

In doing so, for those customers who were unable to repay their outstanding balance in full, or to switch their balance to another credit card provider, a repayment arrangement was put in place. This arrangement, which wasn’t a personal loan, allowed customers to make a fixed monthly payment of 3 per cent of their outstanding balance at an interest rate of 10 per cent.

It is possible that MBNA could adopt a similar approach, or it could look to run down its $19 billion book by selling on its debts to a debt collection agency. If this was to happen, then credit card holders with MBNA would need to look for an alternative provider if they wanted to hold onto to their credit card.

According to financial advisor Gary Hanrahan of Capital Options, whether or not another credit card provider will give you a card will be dependent on your credit history. If you have a clean record, then getting another credit card, even in this environment, shouldn’t be a problem.

However, what you may find is that your choice has significantly reduced. MBNA’s potential closure is coming at a time when access to banking services has diminished as closures, consolidation and capital hoarding mean that it has become a lot harder to get services which were once taken for granted. After all, Bank of America is looking to get out of the business because it wants to boost its capital ratios – so why would other lending institutions be inclined to take on additional customers to lend to? According to itsyourmoney.ie, there are now just six credit card options on the market, and with less competition interest rates are being pushed upwards.

If you have a balance to transfer, you should look for a provider which offers 0 per cent on such transfers such as Permanent TSB’s ICE card, which offers 0 per cent for six months, or Tesco, which offers 0 per cent for 6 months.

If, however, you just want the card with the lowest interest rate on the market, you could consider Bank of Ireland’s Clear card, which charges 13.3 per cent, or AIB’s Click card which has an APR of 13.6 per cent. These are both far below what MBNA charges, with an APR of 21.4 per cent on its standard card, and 19.3 per cent on its platinum option.

If you like to withdraw cash from your credit card (which you really shouldn’t), then you could consider the gold card option from National Irish Bank, which has a 10.25 per cent interest rate on cash withdrawals.

Your new card provider may not give you with the same credit limit and many cards now require that you have a minimum salary to qualify.

But, as Hanrahan points out, if you have overdrawn on your card, or used it as a personal loan facility, then you may encounter difficulties getting a new, or replacement card.

For many people, the current uncertainty at MBNA could leave them with no easy access to credit.

If you are having trouble meeting repayments and are either already in, or are heading towards, arrears you will find your options severely diminished. So what should you do? First of all, you could try talking to MBNA about a debt write-down before any change occurs. While we are hearing so much about mortgage forgiveness, Eugene McDarby, chief executive of debt management company Money Village, says that credit card companies are actually writing off debt for cash-strapped borrowers with debt forgiveness of the order of about 50 per cent not unusual. However, to reach such a settlement, credit card companies will often request that the balance be cleared, which can put an additional stress on people. Moreover, you will have to prove to the credit card company that you’re in serious financial difficulty, and will likely have been in arrears for at least three to six months on your credit card.

While a debt settlement will severely hurt your credit rating, by reaching a settlement it may help you repair it in the future.

If, as is hoped, a third party takes over MBNA’s business as a going concern, then the new provider might adopt a similar approach to debt write-downs.

But you can likely wave goodbye to your flexible friend. “If you’re in arrears at all, you won’t be able to get a credit card, never mind transfer a balance,” warns McDarby.

For those suffering from a severe credit hangover however, switching to a debit card may be no bad thing in the long run.