A federal judge will decide today whether a New York bank can stop paying a 3 percent rebate to 65,000 Giant Visa credit-card customers when they charge their grocery bills.
Buffalo-based M&T; Bank, NA, which operates the supermarket's "co-branded" Visa card, says it wants to drop Giant's program -- effective 11: 59 tonight -- because it will lose $9 million to $14 million this year on the card, according to Giant.
According to a lawsuit filed by Landover-based Giant Food Inc. yesterday in U.S. District Court in Greenbelt, the bank said Giant credit-card customers are paying off their balances each month rather than carrying the debt, so it is not making money on interest payments.
The suit seeks to prevent the bank from dropping the credit-card program, which was introduced to great fanfare in March as the first of its kind in the mid-Atlantic region. Giant is asking for $40 million in damages from M&T; Bank, saying the pullout would damage customer relations and cause "enormous and irreparable harm."
Problems with the bank began immediately, according to Giant officials. Customers had a variety of complaints about billing and the approval process. In June, the supermarket stopped promoting it. In October, M&T; first told Giant that it was pulling out.
Gary Paul, senior vice president of M&T; Bank, would not discuss details of the lawsuit. "Basically it is our practice not to make any extended comments," he said. "We believe we have a right to terminate the contract."
M&T; Bank is a subsidiary of First Empire State Corp., a bank holding company with more than $12 billion in assets.
"We are the victim in this, along with our customers," said Terry A. Gans, Giant's vice president of advertising and sales promotion.
The store claims that M&T; told them it did not expect to make money on the credit card for four years, until the users began using it for bigger purchases than groceries and stopped paying off their balances monthly.
The credit card gives a rebate redeemable at Giant for hTC purchases made at the food store and elsewhere.
Customers, who did not have to pay an annual fee for the card, received an unusually hefty rebate from the bank -- 3 percent on purchases made at Giant and 1 percent on purchases made at other stores.
In addition, Giant got a 1 percent merchant rebate that reduced Giant's transaction cost to Visa from 1.2 percent to 0.2 percent. Giant had a five-year contract with M&T.;
The problem may have been that the program was too good a deal for the customers and Giant and not good enough for M&T.;
Lewis Denrich, president and CEO of Valu Foods, which has been negotiating with banks to offer a similar co-branded credit card, said, "I wasn't able to get that kind of a deal." It is more common, he said, for banks to offer 2 percent rebates to customers and no reduction of the transaction cost.
Denrich said the action could have a chilling effect on the industry. Grocery store chains across the nation are negotiating with banks, he said, and banks are likely to look at the programs more cautiously.
"I think it is going to be embarrassing for Giant," Denrich said. "I would be frantic right now if I were them."
Giant said yesterday that it has found another bank -- Chevy Chase Bank -- to take the credit-card program over, but not for another two to three months. Giant is asking the judge to block M&T; from dumping the program until Chevy Chase can take over.
"One possible scenario is that current Giant cardholders would be pre-approved by Chevy Chase," Gans said.
In the words of the lawsuit, "The court is called upon to stop a cardjacking in progress."
If the judge takes no action to block M&T;, credit-card owners will still be able to use their cards, but they won't get the rebate.
One of the problems for the chain is that it does not have a list of the people who have Giant Visa credit cards.
"We don't know who they are," Gans said. So Giant cannot write a letter of explanation to the customers. Instead, he said, the company will offer an explanation in advertisements in their stores and newspapers.
Pub Date: 12/10/96