Gander Mountain claims an Ohio bank has threatened to stop issuing co-branded credit cards to its customers who have good credit. The reason: such transactions are not profitable enough for the bank.
According to a lawsuit Gander Mountain filed against the bank,
World Financial is threatening to automatically deny new credit-card applications
to customers with the best credit scores -- those with FICO scores of 800 or
higher -- because they bring in less revenue from financing than other accounts.
The maximum FICO score is 850.
About a quarter of Gander Mountains customers fit that credit range, according to the Minneapolis/St. Paul Business Journal.
Under its contract with World Financial, Gander Mountain gets a $37 "bounty" for each new credit card account opened. According to the lawsuit, World Financial in May asked Gander Mountain to rewrite its contract to waive the $37 bounty for customers with FICO scores over 800 or it would deny cards on its own. Instead, World Financial said it would offer those customers with good credit a private label card with lower credit limits, fewer rewards and no online servicing options.
Gander Mountain claims that customers with FICO scores over 800 are its "most valuable customers" and if World Financial turns them away, it will create a "negative customer experience" and hurt its business.
World Financial, which has not responded to the lawsuit, also issues credit cards for retailers including Victoria's Secret, J. Crew, Express, Pottery Barn, Ann Taylor, Trek, New York & Co. and Abercrombie & Fitch, among others.
Bill Ryan, managing director of New York research boutique Portales Partners, said that while World Financial's parent company, Alliance Data Systems, generates a lot of its revenue from that late fees, creditworthy cardholders use their cards more often, generating transaction fees for banks. They also pay annual card fees and have negligible charge-offs.
"I have to admit, this is one of the first times I've seen a company refuse to write high-end credits," Mr. Ryan told the Minneapolis Star Tribune.
The lawsuit comes as members of the House and Senate last week announced an agreement to include debit-card fee cuts in the final version of its financial-overhaul legislation.
Discussion Questions: What do you make of World Financial's alleged threat to deny credit to Gander Mountain's most creditworthy customers? Do you generally side with the bank or Gander Mountain? Do you think store card costs for retailers will rise or fall over the next few years?