banktime.com

Bank of America, the nation’s second-largest credit card provider, will be welcoming a new chief executive officer this week. It’s hard to say if there has ever been a time of more upheaval and drastic change in the industry at the point when a new chief has come aboard a major American bank. There’s no doubt that Brian Moynihan will have his hands full when he takes the reins officially next week, after having been hired for the job back in August. The bank’s credit card business faces an uncertain future with the introduction of many new laws affecting the industry, and Moynihan has had to acknowledge his employer’s responsibility in creating so many of the problems that led to the changes. Last month, Moynihan publicly acknowledged that Bank of America had given cards “to too many people,” contributing in no small way to the contemporary credit meltdown.

During that speech, Moynihan talked about BoA “repositioning” its business to rely less on the credit card transactions that contributed so handsomely in recent years to the bank’s bottom line. He acknowledges that BoA cannot possibly be as “big or as profitable” as it was during the credit card boom time, but that’s not necessarily a bad thing. In the first three quarters of this fiscal year, Bank of America’s credit card division accounted for approximately one quarter of the company’s total business. On the other hand, credit cards as a division lost four and a half billion dollars during that same time period, officially making plastic the worst performer in BoA’s stable of products. BoA has also been plagued by a markedly worse default rate than its competitors, with a current rate of thirteen percent.

Experts say that Bank of America’s woes have been largely driven by the company’s push to become the best and largest in the industry. In the early part of the decade, BoA could boast the biggest credit card network in the country (a title it has since ceded to JP Morgan Chase). In 2006, right before the market crash, it purchased massive credit card rival MBNA for a phenomenal thirty-five billion dollars in the hopes of creating a supernova of great marketing and a huge network. The move was meant to be BoA’s pièce de résistance in the forward quest to dominate every sector of American banking: wealth management to mortgages, home-equity loans to commercial lending. Unfortunately, the bank’s ambition also led to several very costly mistakes in the way of underwriting. Had the economy held up, BoA might have never felt the full impact of those poor decisions. However, the banking crisis shed a harsh and unforgiving light on missteps such as unsecured credit lines of up to one hundred thousand dollars extended to start-up companies that had been in business for an extremely short period of time. The bank was trying to become tops in its category. Instead, all the bank built was a default rate that had hit over seventeen percent by the third quarter of this year.

Another significant screw-up on Bank of America’s part happened around the same time that it completed the MBNA purchase. The corporation purchased a software called “Teller Score,” and quickly implemented it at all national outlets. Basically, Teller Score was integrated into the screen that bank tellers saw when dealing with their customers. It would pop up with a window when a customer was pre-approved for a BoA credit card, and tellers were under high pressure to push these products to their customers. The number of customers who accepted these offers were tabulated weekly on individual, branch, market, and regional levels that were discussed by executives during their weekly conference calls – in other words, they were carefully scrutinized. It’s unknown whether Teller Score and BoA’s accompanying emphasis on product-pushing led to people being pressured to sign up for credit cards that they should never have been offered, but it is heavily implied that this process led to the oversaturation that Moynihan freely admits to.

The bank’s official word on the topic is that the credit card losses were “largely the result of a downturn in the U.S. economy and the bank’s exposure to troubled spots of the U.S. such as California and Florida.” But analysts say that BoA also waited too long to cut customers off when their accounts became delinquent. The bank took too optimistic a view of the situation as it catastrophically unraveled, say experts. Bank of America will disingenuously claim that they were being too generous, but it seems fairly obvious at this point that the corporation’s over-lending was primarily driven by nothing but greed.

The truth is that Bank of America is still using Teller Score, albeit in a slightly different way. A company spokeswoman stated that bank employees and managers will no longer be compensated for extending credit lines of the same type to the same customer, and will instead have a portion of their pay tied to their ability to suggestively sell many different products to different customers. This is what is called the “cross-sell ratio.” Also, tellers will not be those who close the sale of credit cards with their clients. Now, customers will be asked to step out of the teller line and speak to a personal banker to have a “more in-depth conversation” about signing up for the plastic. Mark Hogan, an executive with the bank for the East half of the U.S., optimistically refers to this change as making sure that the bank is having the “right discussion with the right person.”