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.
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)