B of A Bonus Plan Makes Splash . . . of Red Ink

A bonus program for credit card customers at Bank of America went from headache to red ink Thursday as the bank reported that expenses associated with the plan topped $11 million.

Tucked away in its earnings report for the second quarter was a notation that the bank had charged $11 million against expenses “as a result of expenses associated with completion of a customer promotional program.”

But the $11 million was not the whole story.

The total cost had been offset partially by gains collected by the bank in the unrelated sale of some repossessed ships. When those gains were counted against the costs of the bonus program in an “other expenses” section of the balance sheet, the net figure was $11 million.

A bank spokesman acknowledged that the actual cost of the bonus program was more than $11 million, but he refused to disclose the total.

The program involved awarding points to customers on purchases made with B of A MasterCard or Visa credit cards. The points added up to prizes, including trips for two to Europe.

The program turned into a headache when it became too successful. Customers clamored to claim their trips as the program headed toward its close on June 30. The bank was forced to hire two additional travel firms to handle the volume, and numerous customers complained about the service and threatened to cancel their accounts.

The benefits for the bank were the potential to attract new customers and lure existing customers into using their B of A credit cards more often. Credit card operations are among the most profitable areas for banks.

When asked about the benefits versus the costs, Frank N. Newman, the chief financial officer, said he thought the overall increase in business made the program worthwhile.