MBNA to be bought by Lloyds – but no immediate change for customers
Credit card provider MBNA is to be sold by Bank of America to Lloyds Banking Group, in a move costing £1.9 billion.
The transaction is expected to complete by the end of the first half of 2017, although it is subject to competition and regulatory approval.
MBNA has assets of £7 billion and on completion of the transaction, Lloyds Banking Group’s market share in credit cards will increase from circa 15% to about 26%.
The banking group says the deal is “expected to deliver strong financial returns and create significant value for shareholders”.
Lloyds Banking Group’s share price has risen from 62.55p at close yesterday to 63.59p at the time of writing today.
The £1.9 billion purchase price includes a £240 million provision for future payment protection insurance (PPI) claims. But this is a cap, and if claims exceed this amount, MBNA’s current owner, Bank of America, will have to foot the remaining bill.
I’m an MBNA customer. What does this mean for me?
Lloyds Banking Group says the MBNA brand will be “maintained as a challenger brand”, and adds that there is no immediate change for either new or existing MBNA customers.
It adds that customers should continue to manage their accounts as normal, and that all queries should be directed to the MBNA customer services team as per usual.
PPI complaints about MBNA should also continue to be made to MBNA’s customer services team.
António Horta-Osório, Lloyds Banking Group CEO, says: “The MBNA brand and portfolio are a good fit with our existing card business and we will focus on providing its customers with excellent service and value.”
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.