Chevy Chase Bank has stepped up as the new banking partner for Giant Food Inc's. controversial cobranding program.
The $5 billion-asset thrift will be issuing the Giant and Super G Visa cards, effective next week, taking the place of M&T Bank.
The original issuer abruptly withdrew from the supermarket partnership in October, prompting a lawsuit as Giant Food scrambled to find a replacement.
The previous arrangement proved unusually lucrative for Maryland-based Giant, as M&T, a unit of Buffalo-based First Empire State Corp., carried the cost of all rebates in addition to granting Giant a highly attractive fee schedule.
The new deal allows cardholders to continue to receive 3% rebates on Giant purchases and 1% on all other purchases. The card will have a 9.9% introductory interest rate for six months; the rate then jumps to prime plus 8.9% to 9.9%.
"I don't know how Chevy is making money on the deal," said Jeff Baxter, principal of the Baltimore-based consulting firm S.J. Baxter & Associates. "But (it) was the only practical choice to take over the card program, because Chevy operates in the same market as Giant Food."
Officials at Chevy Chase were unavailable for comment.
Current cardholders will have to apply for the new Giant card, but Mr. Baxter expected most of those 65,000 people will switch to Chevy because of the attractive rebate package.
Though the consumers' benefits were preserved, industry observers said the terms of the arrangement were probably altered to make it more attractive for the issuing bank.
In the suit filed in October, Giant maintained that the replacement program offered by Chevy Chase would cost the supermarket chain at least $20 million.
Joel Friedman, managing partner of Andersen Consulting in San Francisco, said Chevy Chase has historically been an aggressive card issuer that recently suffered some credit quality problems. It has scaled back a card program that was once among the top 20 in outstandings and the largest among savings institutions.
The deal may be a signal that Chevy Chase "is aspiring to the major leagues," said Mr. Friedman, "but the American public is conditioned to paying in full for groceries, and I'm skeptical about the long-term viability of some of these supermarket credit card programs."