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Glitch at CalFed Blocks Accounts

ATM/Visa check cards are deactivated amid merger preparations. About 9,000 accounts will be reactivated today.

October 16, 2002|Debora Vrana and E. Scott Reckard

Elvis Schmiedekamp never planned on this.

California Federal Bank, which features Schmiedekamp on billboards and in radio ads touting its customer service, left more than 9,000 customers stranded without access to their cash over the weekend after their ATM/Visa check cards were mistakenly canceled, CalFed executives said Tuesday.

In anticipation of its pending takeover by Citigroup Inc., CalFed officials decided to change account numbers and issue new cards for about 13,000 CalFed customers whose account numbers overlapped with accounts at Citigroup, the nation's largest bank.

However, because of a "programming glitch," cards were deactivated Friday for about 9,000 customers, said Janis Tarter, spokeswoman for San Francisco-based Golden State Bancorp, the parent of California Federal Bank.

The cards can be used to make debit and credit purchases and to get cash from automated teller machines.

"We apologize sincerely for the error," Tarter said. "Once the merger closes, we wanted to make sure we had taken care of everything in advance to minimize disruption."

The glitch apparently angered many customers, especially small-business account holders such as Ranee A. Spina, who lined up at a CalFed office in Los Angeles on Tuesday to get access to her money.

"I'm just in shock. We had people who couldn't check out of hotels, [we had] cards declined at restaurants," said Spina, creative director and founder of Urban Art Design Works, an advertising design firm in Los Angeles.

"We were all getting declined and I said, 'What do you mean, I know how much money is in this account.' Whoever made this decision needs to be fired."

Accounts were expected to be reactivated today. However, customers still having trouble should call (800) THE-BANK, Tarter said.

The merger between CalFed and Citigroup is pending regulatory approval. Citigroup offered in May to buy Golden State, and shareholders approved the merger in August.

Glitches by banks during a merger are nothing new, industry analysts said.

"You'd like to think it's unusual, but when a huge company like CalFed makes a tiny glitch, it affects a huge number of people," said Charlotte Chamberlain, a bank analyst in Los Angeles for investment bank Jefferies & Co.

Washington Mutual Inc., which has become the nation's largest savings and loan through a series of acquisitions, drew criticism this year from customers of Dime Bancorp in New York, which Washington Mutual acquired in January, according to published reports.

The complaints included discontinued or lost savings and checking accounts, the failure of ATM and debit cards to arrive in the mail, and additional fees being attached to commercial accounts.

A Washington Mutual official was quoted as saying that integrating systems "can be overwhelming."

Jenette Gayer, a consumer advocate for the California Public Interest Research Group, said her group believes that "as banks get bigger, service goes down and fees go up" because competition declines and bureaucracy increases.

Ed Carpenter, chairman of Carpenter & Co., an Irvine-based investment bank specializing in financial services, said it would be unusual in a merger of CalFed and Citigroup's size if nothing went wrong. But he said it gives smaller banks a chance to attract a large bank's unhappy customers.

"These kinds of glitches do provide opportunities for aggressive competitor banks," Carpenter said.

Spina said she is considering changing accounts because such problems can hurt her business.

"Banks should consider it a privilege to hold our money for us," Spina said.

"There are more small business in Los Angeles than large ones. You'd think we'd be their top priority."

As for Schmiedekamp, the thrift's head of customer service, "As far as I know he didn't talk to any" angry customers over the weekend, Golden State spokeswoman Tarter said.

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