Store Cards Rejected for Good Credit
By Tom Ryan
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.
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.
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.
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
“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
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?
- When is good credit too good? Ask Gander Mountain – Minneapolis Star
- Gander Mountain sues credit card issuer; says bank would block good-credit
customers – Minneapolis/St. Paul Business Journal