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Uncle Sam Just Winked at Citi’s Credit Card Rate Increase

Posted by Larry Doyle on July 1, 2009 3:57 PM |

Did Citigroup just pull a fast one?

An issue impacting more Americans than their monthly mortgage payment is their monthly credit card payment. Obama has proposed legislation to limit banks’ ability to increase these rates. That legislation is not scheduled to be implemented until 2010.

In the interim, Obama is working on implementing a Consumer Financial Literacy Program to protect consumers from usurious type behaviors by financial institutions. An example of this behavior is reported by the Financial Times, Citi Raises Card Rates on Millions:

Citigroup has sharply increased interest rates on up to 15m US credit card accounts just months before curbs on such rises come into effect, in a move that could fuel political anger at the treatment of consumers by bailed-out banks.

People close to the situation said that Citi, which is about to cede a 34 per cent stake to the US government as part of its latest rescue, had upped rates on between 13m and 15m credit cards it co-brands with retailers such as Sears.

Read that again. Uncle Sam has a 34% stake in Citigroup. Suffice it to say without Uncle Sam’s bailout, Citigroup would be nonexistent. Uncle Sam is clearly the major shareholder in Citi. As such, management can not make any substantial decisions without Uncle Sam’s blessing.

Then how is it that Uncle Sam just winked at this rate increase? The FT adds:

After FT.com broke news of the hike, Citi issued a statement saying: ”We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles. These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit.”

Dramatically higher cost of doing business? Citi can borrow Fed Funds at 0-.25%. That is not exactly dramatic.

Citi’s move came as the economic downturn caused record defaults among US card users and prompted many issuers to raise rates, both to cushion their losses and pre-empt the new restrictions set to come into effect in February.

However, Citi’s increases have been larger than those of its main rivals, according to Lightspeed, which tracks about 12,000 US credit card accounts.

What’s wrong with this picture? Citi is flush with taxpayer cash on one hand and dramatically jacks its credit card rates for the same taxpayers on the other hand.

As a taxpayer, do you feel like we are getting squeezed both coming and going? Yep, me too!!

LD

  • I’m not sure how raising interest rates is going to facilitate the consumer activity which USA (and the rest of the world for that matter) is depending on to relieve us of this crisis.

    I understand that at its core, banking is a business and that banks can not afford to care about anyone besides themselves right now. In a business sense it’s a good decision I suppose.. but what are its longer term implications?

    Might I predict..
    -Acceleration in credit card defaults
    -A significantly lower credit score average among American citizens (Less applications for car/home loans in the future)
    -Significantly decreased retail spending
    -Increased saving rate

    When BOA raised rates on my credit card (nearly double!) I had no choice but to put all my spending cash towards paying it off as quickly as possible, and I’m sure that most people will do the same.

    Banks are choking clearly, and that lack of air is being passed right on to the struggling, unemployed citizen with student and car loans to pay. The age of the under-the-table entrepreneur is surely fast in the making.
    BTW I love your blog!

  • Joshua C.

    I was effected by this rate increase! I’ve had my Citi card for years, and used it often to help put me through college! I’ve never made a late payment on it and had an interest rate of 13.99%, which I already thought was too high. Then I get a letter from Citi saying they are going to increase that APR to a whopping 29.99%!!! Certainly, I wasn’t going to deal with that… I opted out and closed my card. They won’t see any future business from me!!!

  • Laura C

    I was shocked when my Sears Gold MasterCard rate just jumped from 10.24% to 25.24% APR I’ve had the card for years!! Have a $46.00 balance that I had just paid off before I opened their letter!! W””””””!!?? Obviously my credit was good with them “Citigroup” or I wouldn’t have had the rate to begin with. I would like to know who this isn’t happening to.

  • will

    Got my letter for rate increase today…25.24% WTF??? I had the card for years,never late and low monthly balance. That explains all the credit card checks I’ve thrown in the trash these past several months. I’ll keep the card,but NEVER carry a balance on it again.

  • One more victim

    Same thing here. I had 9.75% for several years, today got the letter saying they are going to increase interest to 29.99%. TRIPLE the interest rate? As majority of people here, I was never late or over the limit, always paid at least minimum payment, carry balance (currently around $800). My answer: pay the balance immediatelly and never deal with that tax-supported financial monster again. Company run by morons: Who in the right mind will increase the interest rate for the cash strapped consumer right before the shopping season?

    • Becky

      After receiving my rate increase and choosing to opt out of the program, I contacted CitiBank in regards to the new law passed by the Obama Administration. With that being said, the new law passed states that no credit card company can raise your interest rate unless you are 60 days late on a payment. Being a consumer who is responsible, never late on a payment, always pays more than the monthly minimum, I questioned this. The CitiBank rep was aware of this new law and said she would have to put me on hold. After returning to my call, she informed me that “At this time, CitiBank is not available to discuss this information because CitiBank has not decided how the new law was going to effect them.” When I proposed a late date to contact CitiBank back in regards to this matter, once again, she said she was not able to discuss this with me. I suppose this could be due to the fact that the new law does not go into effect until July 2010. Who knows if CitiBank will adopt a better proposal for their reliable customers that pay their bills on time. It’s not right for these banks to make all consumers pay for other’s defaults.

  • Wenluc

    Had my card for 10 years, and just like many of you, used it for major events such as college tuition. I never even received a letter,(neither did my mother whom has had business with them for more than 15 years)I have a balance of about $10,000 therefore, only on interest, I have to pay $250. When I called Citi to ask them why this change was made and told them I never received any notice, they did not believe me; however, they attempted to help me by refunding some money for last month balance but as of right now I cant pay the $400 min payment due…It is so upsetting and frustrating that after so many years of business with this company and never being late or over my credit limit, they did not even had the courtesy to explain to me about this changes sooner and give me some options to help me at least keep my card open, because at this point the only option is to get involve with a credit card counseling group to hep me pay off this card.






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