Behind the spin

THE DILEMMA

by
Last Updated: 09 Oct 2013

It's Eastertide and your thoughts will surely be turning to the chocolate egg that your loved one will give you. But spare a thought for the plastic kind. In January, internet bank Egg announced that it would be withdrawing its credit card from 161,000 of its two million credit cardholders. At first, the decision was seen as a prudent response to the credit crunch. But many of Egg's dumped customers had never missed a payment or gone over their credit limit - and they began complaining. What was the bank's real motive? The suspicion was it was getting rid of its least profitable customers. The complaints boiled up a storm of protest, amid concerns that banks were actually showing a preference for exploiting debt-prone customers more likely to run up bank charges.

THE SPIN

Egg was bought by US banking behemoth Citigroup from Prudential for £546m last May. Citigroup said its decision to withdraw credit cards from higher-risk Egg customers came after an extensive review. 'We are sorry that customers receiving letters are hurt and upset,' said a Citigroup spokesman, 'but we stand by our decision. We are not getting rid of customers who don't make us money.'

THE STRAIGHT TALK

With this apparent dismissal, Egg has offered a lesson in bad PR. Parliament has now referred to the Office of Fair Trading the allegation that Egg cancelled credit cards of holders who had consistently paid up on time. Egg strongly denies the claims. But Nigel Griffiths, an MP and former consumer affairs minister, said: 'Of course, no-one should be forced to give credit to anyone. But there is a strong suspicion that these (cardholders) are people who - because they don't get into debt and start paying high interest charges - may not be the most highly profitable customers.' He was in no doubt that this was the real reason for the cancellations.

THE VERDICT

Egg caused confusion by not communicating clearly its reasons for cancelling customer credit cards, especially as its decision was the first such action taken by a UK credit card issuer. There's nothing wrong with what it did; its failure lay in not anticipating the negative publicity or managing it quickly enough. Consumers and the media are getting jumpy and Egg has now blown any goodwill that was initially bestowed on it. To consumers, the bank now looks is just as cut-throat as any other, and MPs are alarmed by its behaviour. Egg must have learnt a big lesson, one that business schools will surely be drawing on for future case studies.

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