The MBNA factor
Working Assets credit card customers who think they're helping progressive causes are also helping to fund Republicans and the rollback of consumer rights
By Matthew Hirsch
Here's something Working Assets credit cardholders might want to know. With each transaction you are helping to generate revenue for one of the top contributors to the Republican Party.
This fact left Berkeley computer consultant Joe Caldarola, who's held a Working Assets credit card since 1986, in utter disbelief. He characterized Working Assets' relationship with MBNA America Bank, which manages its credit card business, as "a deal with the devil."
Working Assets, according to its Web site, is "one of the most powerful progressive citizen-action groups in the nation." Every time a customer uses its telephone or credit card services, Working Assets donates a portion of the charges to progressive nonprofits. Over 20 years, the company has handed out more than $47 million, and helped keep its customers informed.
But Caldarola says Working Assets' philanthropy is undermined by its partnership with MBNA. He's been calling on Frank Dunbar, the head of Working Assets' credit card division, to start looking for a new credit vendor.
Working Assets says that's impossible because of its contract with MBNA, which was purchased three years ago from Fleet Bank. And even if it could dump MBNA, how many national banks practice socially responsible investing and never contribute to Republicans?
The dilemma facing progressives who wish to vote with their wallets is not about choosing where to donate their money. Increasingly, there's a different credit card for each organization that's trying to build a better world. The problem is, there are about as many progressive lending institutions as there are Democrats today in the White House.
Working Assets isn't the only do-gooder group sporting an MBNA card. MBNA has more than 5,000 credit card partnerships, many with nonprofits, including the Cal Alumni Association, the Nature Conservancy, and the Rainbow Card, which donates to LGBT causes.
But nobody would make the mistake of calling MBNA "progressive."
One of the largest credit card issuers in the United States, MBNA has deep ties to the Bush Administration and the Republican Party. Since 1994 MBNA has tossed more than $8 million to the GOP, according to the Center for Responsive Politics. That accounts for 83 percent of all political contributions from the company, its executives, and its employees.
As the feds have loosened regulations on the banking and finance industries, MBNA began pushing aggressive policies on its credit cardholders that are driving up interest rates and other costly fees. It was a notice from MBNA of such policy changes that first led Caldarola to contact Working Assets.
A bookish, middle-aged man with giant eyeglasses and a nose for detail, Caldarola spotted something in the fine print that appeared similar to a lending policy known as "universal default." Universal default means a credit card company can automatically jack up your interest rate anytime your overall credit drops even if you've never missed or been late on a payment.
In the letter Caldarola received May 2, MBNA warned that it could raise interest rates as high as 25 percent, without any additional notice, if a cardholder makes a late payment or exceeds the credit limit. The higher default interest rate would then apply to all new and outstanding credit card balances.
Caldarola brought the letter to the San Francisco-based nonprofit Consumer Action, where he volunteers every Tuesday, and he's been making his anti-MBNA appeal to Working Assets ever since.
"All I asked for is a dialogue between them and their customers. They have a duty to admit to their own customers that they're stuck in a bad contract with MBNA," said Caldarola.
When asked about MBNA's ties to the Republican Party, Maia Ettinger, the in-house counsel for Working Assets, said, "We don't think corporations should be engaged in influencing elections the way MBNA does."
Ettinger declined to discuss the terms of Working Assets' contract with MBNA, noting it would violate the agreement to do so. But she told us Working Assets complained about the recent credit card policy changes, which MBNA told its 101,000-plus cardholders about without first notifying Working Assets.
Inevitably, Ettinger said Working Assets will be at odds with the banking industry over one issue or another, but that's never influenced how the company is run. "We don't compromise our stance on the issues based on a relationship with a bank," she said.
The difference is that Working Assets lets its customers decide which issues to support and which organizations to fund, Ettinger said. MBNA does not. "MBNA didn't ask its customers, 'Hey guys, should we support the [federal] bankruptcy bill?'" she said.
That legislation, the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, which MBNA lobbied for Congress to pass, is expected to make credit card debt even harder to handle. That's especially true in the Bay Area, where the average income is higher than in most of the state but so is the cost of living.
The law, which takes effect in October, establishes tighter limits on who can have debt wiped clean in bankruptcy court. It also extends the amount of time people remain indebted to their lenders from the time they file bankruptcy.
MBNA spokesperson Jim Donahue didn't our return calls for this story, but we were able to obtain the testimony of Louis Freeh. Freeh was director of the FBI during George W. Bush's first term in the White House, and now he serves as vice chairman and general counsel for MBNA Corp.
On May 17 he told the US Senate Banking Committee, "When we increase a customer's [interest rate], we do so for one of two reasons: Either our costs have increased, or the customer's credit worthiness indicates a higher risk than is supported by the current price."
The second reason sounds a lot like universal default, but, strangely, Freeh also told the Senate, "MBNA does not practice universal default."
That's not exactly true, said Joseph Ridout, of Consumer Action, a San Francisco-based nonprofit that publishes an annual credit card survey. He wants the government to take a closer look at universal default.
"Frankly, [universal default] should be illegal, and some states are taking steps to make it illegal," he said, including New York.
Like Caldarola, Ridout also wants to see Working Assets end its partnership with MBNA. He said it's difficult for the company to claim it's funding progressive social change when it's also funding the rollback of social change.
Here's how it works: Assume somebody spends $100 at the grocery store using a Working Assets credit card. Ten cents of that money will end up as a contribution to one of Working Assets' donor recipients. Meanwhile, about $1.75 will flow to MBNA, according to Ridout.
The $1.75 represents an estimated 1.75 percent "interchange fee" merchants must fork over to credit card companies, a figure that's risen sharply in recent years. Of course, any fees the cardholder must pay finance charges, late fees, and over-limit fees, for example would add to MBNA's revenue from its partnership with Working Assets.
"People accept their cards because they fully believe their spending habits have an impact on the sociopolitical side of things. I wonder how many Working Assets cardholders know they're funding the Republican Party?" Ridout said.
Ridout suggested that Working Assets set up a socially responsible credit card. Maybe, he proposed, progressive groups could come together and form some sort of a credit co-op.
Assuming progressives could gather the capital needed to open a bank, could a socially responsible credit card really work? Peter Camejo, a progressive asset manager who was Ralph Nader's running mate in the 2004 presidential election, told us he doesn't think so.
"It is very difficult to create counter financial institutions. Those who try to do that could set themselves up to have a disaster on their hands," he said.
But consumer advocates agree that nonprofits should try to hook up with alternative lenders like credit unions, which generally have competitive rates and are less likely to take advantage of credit cardholders.
Four years ago, Camejo looked into the idea of creating a Green Party credit card in partnership with a bank. It's an idea he and the Green Party haven't totally left behind, Camejo said. Meanwhile, the Democrats have already launched a DemCard, offered by the upstart Juniper Bank, based in Delaware. The DemCard is now available in 26 states, including California.
Visit BuyBlue.org for information on Democrat-friendly lending institutions, and see Consumer-Action.org for more on how the policies of major credit card lenders stack up. Consumer Action's 2005 credit card survey is due out later this month.
E-mail Matthew Hirsch