LANDOVER, Md. (FNS) -- Giant Food here last week obtained an injunction from a federal judge that will allow its co-branded Visa credit-card program to continue as it switches bank partners.
The chain filed suit in U.S. District Court in Greenbelt, Md., Dec. 9 after learning that its partner, M&T Bank of Buffalo, N.Y., planned to terminate its Giant Visa Card program after only 10 months. The bank informed Giant that it planned to kill the program Dec. 9 in a termination letter dated Oct. 9.
Giant said it spent the weeks before the injunction was granted looking for a new partner and working with M&T to negotiate a smooth transition to the new program. "At this time, however, M&T has informed us that further discussions are fruitless, forcing Giant to resort to the judicial system for protections for its customers," Giant said in a statement released before the injunction.
As of last week, Giant was negotiating with Chevy Chase Bank of Maryland to continue the program at the same rebate rates. However, the percentage fee Giant must pay per customer may change. The chain last week was negotiating the percentage with Chevy Chase, Giant spokesman Barry F. Scher said, adding the contract should be completed "soon."
Scher said the changeover will cost Giant an estimated $40 million over the next four years. He said the chain will try to recover the amount from M&T Bank. M&T bank officials did not return calls for comment.
In January, M&T signed a five-year deal with Giant to offer the card, beginning in March. As part of the contract, M&T gave customers a 3% rebate on credit purchases made at Giant and a 1% rebate on purchases made at other locations. The rebates, up to $500 per year, were issued as quarterly certificates redeemable for free groceries at Giant's 171 stores. Also, the bank reduced the fee that Giant normally paid when a customer used a Visa card, from 1.2% to 0.2%.
The card was a hit. M&T predicted 50,000 customers would want one, and 65,000 actually signed up, according to Giant. In addition, M&T predicted annual charges of about $3,600, but shoppers soon were charging at an annual rate of $8,000, Giant said. The increase meant M&T was paying double the rebates it had expected. Meanwhile, customers were paying off their Giant Visa credit bills, so M&T was generating less interest -- and less profit -- than projected.