How the Capital One-HSBC credit card deal affects consumers

What the 27 million cardholders should expect from the $33 billion deal

By Martin Merzer

Hi. We just bought your credit card account. But it's all going to be wonderful and nothing will change -- for now.

That was the message conveyed Wednesday morning to 27.2 million U.S. credit card customers whose accounts are owned or managed by HSBC. Capital One, the nation's fourth largest issuer of credit cards, announced that it was spending $32.7 billion to buy the vast majority of the U.S. credit card accounts of HSBC Holdings Plc, Europe's largest bank.

Affected are 10.3 million holders of HSBC-branded MasterCard and Visa bank cards, 3.3 million holders of General Motors and AFL-CIO cards that are co-branded with HSBC, and 13.6 million holders of credit cards that carry the logos of Best Buy, Neiman Marcus, Saks Fifth Avenue and 18 other retail firms that co-brand with HSBC.

Sit tight, but stay alert
What should all of these credit card customers -- and others who could be affected by similar takeovers in the future -- do? Nothing, in the short term, experts say, though cardholders would be wise to stay on alert.

"In general, consumers should take a wait-and-see approach when a credit card changes hands," said Chris Fichera, an associate editor of Consumer Reports who specializes in matters of finance. "The terms and conditions may or may not change much under the new card issuer, so consumers should check their mail for any literature notifying them of changes in terms before they consider any action."

Robert Hammer, a Thousand Oaks, Calif., investment banker who specializes in the buying and selling of credit card portfolios, seconded Fichera's mailbox-related motion. Hammer's firm, R.K. Hammer, has handled 148 credit card portfolio deals during the past 22 years.

"Cardholders can usually expect to receive three communications about the deal," Hammer said. "First, when the deal is announced. Second, when the deal is completed. Third, when the accounts are moved to the buyer's accounting and data processing system, usually in 120 days."

Read the new documents
Importantly, this is one time for credit card account holders to actually read all the bold-faced disclosures, fine print and boilerplate of the material they receive from the new owner of their accounts.

"The watchword for consumers is this: Read your mail," Hammer said. "It will disclose any changes that the buyer may implement."

The acquisition-related public statements of Capital One Financial Group dwelled on the corporate finance aspects of the deal and were notably absent of advice or comfort for credit card holders. But Julie Rakes, a spokeswoman for Capital One, noted that the complex deal is not expected to be finalized until nearly the middle of next year.

"So, it's business as usual for HSBC's customers," Rakes said. "They should continue to use their credit cards as they normally would.

"We are very excited to work with our new retail and co-branded partners, as well as the HSBC associates who are joining Capital One," she said.  "Together, we look forward to providing exceptional value and service to our new customers."

Capital One executives stopped short of vowing not to change the terms of any of the credit card contracts they are acquiring from HSBC. That does not surprise Hammer and other experts.

"Will the rates and fees change? Probably yes," Hammer said. "When [they will change] is determined by the buyer. It's common for no changes very soon, though, unless someone has a weaker FICO" credit score.

Change may be for the good
Still, he and other experts noted that the word "change" doesn't necessarily mean "they're going to jack up the fees or otherwise make your life harder."

"Often, a buyer will offer a better deal, more services and features," Hammer said. "A seller has commonly not put a lot of money into the business lately, so a buyer eager to please its new customers may come out with even sweeter deals -- for better cardholders."

It's not entirely clear to what extent HSBC had been investing in its U.S. credit card business, but the firm had made clear months ago that it was looking to unload it as part of its strategy of streamlining its business and re-directing its focus toward faster-growing and emerging markets. Earlier this year, HSBC said it was selling many of its U.S. bank branches and otherwise diminishing its presence in the United States and Europe.

Though the deal is costing Capital One about $32.7 billion, that money is buying about $30 billion in what the financial types call "receivables" -- meaning the current balances owed by HSBC's credit card customers. So, assuming those bills are paid, the acquisition will cost Capital One about $2.6 billion in the end, something of a bargain by industry standards.

In recent months, Capital One has been in acquisition mode, agreeing in June to buy the U.S. online bank owned by the ING Group of the Netherlands.

"The acquisition of HSBC's domestic credit card business is an attractive strategic and financial opportunity in a business we know well," Richard D. Fairbank, chairman and chief executive officer of Capital One, said in a written statement. "Adding the HSBC card business to our own will enhance our credit card franchise and accelerate our achievement of a leadership position in retail card partnerships."

Keep calm and carry on
Still, for credit card customers, it can be jarring. So, consumer advocates and credit card industry figures, often at odds, form a united front when it comes to advice for people facing these circumstances.

Don't make any rash moves.

"Closing an old card and opening a new one can impact your credit score, so you wouldn't want to do anything prematurely," Fichera said.

As the Capital One-HSBC deal moves through the gears of the financial and regulatory machines, nothing much will change for cardholders. But, when the deal is done -- in this case, sometime next year? -- that's definitely the time for a measure of wary consideration.

"In particular, consumers should be looking for changes in terms such as annual fees, credit limit, and changes to how much points are worth and options for redeeming them," Fichera said.

Hammer: "Will things change? As we said, probably. But not all changes will be for the worse, and some even may be for the better. Read your mail. The buyer has to disclose."

And, if you are holding one of the affected accounts and you have any concerns, just call that number on your statement or on the back of your card.

"HSBC customers who need to talk with someone about their accounts should direct their questions to HSBC, as they normally would," Rakes said.

Published: August 10, 2011

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