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Uncle Sam Winks Again at Citigroup’s Credit Card Fees

Posted by Larry Doyle on August 20, 2009 3:14 PM |

When a company, which is a ward of the state, increases credit card fees can it be said to be the equivalent of a tax increase? I believe it can. In that vein, Citigroup is raising taxes on its credit cards by initiating annual fees. The Wall Street Journal highlights this development and reports Citigroup to Initiate New Annual Fees on Some Credit Cards:

Citigroup Inc. is instituting annual fees on some current credit-card accounts in an attempt to offset strict new legislation that could dent its profits.

The move comes on the heels of several warnings from the banking industry, which has said that issuers would be forced to rewrite the playbook on plastic because new credit-card laws would take a bite out of their income.

Rates of between 20% and 30% aren’t sufficient for income purposes? The fact is, current card holders are paying for the undisciplined lending practices of the bank over the last 5 years.

These laws include new limits on interest-rate increases on existing balances and greater disclosures.

The legislation was written to prevent abusive practices on the part of the banks. The fact that it allows for the implementation of practices such as these paints the legislation as the equivalent of a ‘show trial.’

Typically, annual fees are associated only with cards that offer generous rewards programs. In recent years, few issuers have risked losing market share by charging annual fees across the board.

Now, Citigroup’s attempt to charge annual fees—perhaps the first time a large card lender has used such fees in response to the legislation—will be watched closely by competitors.

Card lenders are seeking ways not only to offset the effect of the legislation, but also to cope with growing losses stemming from souring credit-card loans.

Card issuers have been raising interest rates and fees, tweaking rewards programs, reducing credit lines and closing accounts.

“We have adjusted pricing and card terms for some customers as part of our regular account reviews,” said Samuel Wang, a Citigroup spokesman. “These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit. As part of this change in terms, a small number of Citi customers may be notified of an annual fee.”

Higher cost of doing business? What? Borrowing from the Fed at between 0-.25% is too high? These types of statements take a special type of gall. Wow!

The fee increase was reported earlier by blogs such as Bargaineering.com, and American Banker.

In one instance, a Citi cardholder was informed, in a mailer, of a $30 annual fee. This fee may be waived if at least $2,400 in spending is racked up on the card in a year.

Citigroup is experimenting with a range of annual fees, some in excess of $30.

Cardholders notified of these annual fees have two months to opt out, paying off their balances under current rates and terms over the rest of their contract.

Peter Garuccio, a spokesman at the American Bankers Association, an industry trade group, said, “Annual fees are one way that card issuers can reconfigure their card portfolios and reprice their products” following the credit-card legislation.

The new legislation, the bulk of which will be implemented in February 2010, aims to limit fluctuating interest rates and fees, and arm consumers with more information about their debts.

Given that the legislation goes into effect in February 2010, the banks are clearly trying to get all of these income generating, beat-the-consumer maneuvers in place well before then. Thanks Wall Street and Washington.

What a joke. Problem is, once again, the joke is on the American consumer.

LD

Related Sense on Cents Commentary:
    Uncle Sam Just Winked at Citi’s Credit Card Rate Increase (July 1, 2009)
    Banks Build Better Mousetrap (July 9, 2009)

  • Randy Bowman

    Let’s all just take a step back for a moment and ask ourselves a question, shall we? Did any of us really believe the government was going to shoot a poison-tipped arrow into the banking industry’s cash cow (credit cards)without first giving them plenty of time and enough legal loopholes to more than offset any damage that might be done to their revenues?

    Delayed and weak legislation such as this is nothing more than collusive window-dressing to give the consumer a warm and fuzzy feeling that their government is acting on their behalf by stopping those big bad banks from taking advantage of us while we’re down.

    The big banks absolutely thrive on the mega returns from the credit card business and they are not about to sit still while someone plunders the kitty that covers a whole host of financial ills within the industry.

    Besides.. even if our representatives were not in cahoots with the mega bankers, legislating product pricing is akin to attempting to nail jello to a tree.

    Haven’t you ever wondered why legislation with big holes and long delays til implementation keep happening? I wonder.. Might it have anything to do with behind the scenes wrangling between lobbyists for the industries concerned and our elected representatives? Naww.. surely that doesn’t happen and everything that goes on there is all above board and clean as a whistle, right? Your guess is as good as mine.. but somehow the government cheese loses more of its fragrant aroma the deeper we dig into reality.

    • Bob

      The reason that all of this happened with Washington waggin their fingers at the Banks (you’ve been naughtY) is that the government caused all of this in the first place, by trying to be kinder and gentler, pushing Banks to make sub-prime loans when it made no financial sense and we all see how that turned out. Now all of us will suffer because the Government weenies are always trying to take what is not theirs the money of the tax payers and play God with it by giving it to those that cannot pay it back and those of us who can and are paying taxes get stiffed with the Bill

  • Phil

    While I don’t agree with Citigroup’s business decision, my reaction as a consumer is that I would move to another credit card company. Businesses should be able to make decisions within the law; even if that drives business elsewhere. If they are somehow breaking the law, regulators should stop them.

  • Bob

    Oh I’m sorry Mr. Tax paying citizen, we were stupid and forced banks to make financially unsound sub-prime loans and we’re going to fix it by taking more of your tax dollars and give it them to prop them up and by the way the deficit we just created by doing that is going to be paid by …. who? You the schmuck taxpayer …. Mwaaaa hahahahaha. Hugs & Kisses — Your Uncle Sam

  • Bob

    Oh and just one more thing. You still have some money left and a home to live so obviously we were not kind and gentle enough. We’re now going to create a new permanent drain on your money and the economy called socialized public healthcare and we’re going to ram it down your throat like a pharmaceutical pill open wide (or should I say bend over)?

    Mwaa hahaha ….. (more to follow … trust me I’ll think of something) — Warm regards Your Uncle Sam






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