Citibank and Other Credit Card Companies Raising Interest Rates

Citibank announced yesterday that it is raising the rates that approximately 20% of their credit customers pay on outstanding balances. They expect the rate increase to be on average 3%. The WSJ reported that (sub required):

""The industry has recently experienced an unprecedented market cycle with severe funding dislocation and significant consumer credit deterioration driven by the mortgage crisis and rising unemployment. In light of these unprecedented developments and others, Citi will be repricing a group of customers in our Citi-branded consumer credit-card business in the U.S. to appropriately manage these risks," said John Carey, chief administrative officer of the credit-card unit.

Citigroup's move follows a similar change by American Express Co., which is raising rates to some customers by two to three percentage points. Raising rates on customers is a delicate dance for credit-card companies. While the firms want to pull in more revenue from customers who carry a balance from month to month, they don't want to tip those customers into default because that hurts the card issuer's bottom line.

Customers can opt out of the rate increase. Those who do are permitted to use the card at the old rate until it expires."

Citibank is not alone. Last month Amex raised rates on several of its customers by 2 to 3 percentage points. Nordstrom also summarily raised rates on all of its 2 MM customers.

All of this makes you wonder though. Isn't this the exact opposite of what the TARP was supposed to accomplish? Wasn't the idea to loosen lending and lower rates?

It also makes me wonder when a smart bank is going to come along with a lower rate and take all of of the impaired banks customers. There are relatively healthy banks out there and if they have capital, which they should, they could have a field day. Raising rates in a recessionary environment when the Fed Funds Rate is close to 0% doesn't seem like a great long term business strategy.

Comments

Tom

August 14, 2010

I called home depot today to find out why my payment had gone up by 45$ a month when I had made no new charges. The lady told me that it was because they are now charging me 2% of what I owe for minimum payment but if I wanted to opt out I could. So I said yes I wanted to opt out. She then told me that my account had been closed!!!!I said I did not want my account closed ...she put me on hold then came back and said I am sam sorry its closed there is nothing I can do! I did not give her permision to do that!!!She hurt my credit score by closing my account! They are charging me 26.99% interest and they close my account!! HOME DEPOT BITES!

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Tom W

August 19, 2010

Everything that is described above happened to me too. I closed my account and my credit score dropped substantially. What can I do to get it up or get that off. I have never.....ever defaulted on any loan or payment ...ever and this is the thanks I get. I am having problems getting a mortgage loan because of this. Is there any recourse? Can I call Citi and get them to take the mark off my credit. Should I write my senator? Is there a class action law suit?

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StupidOne

September 15, 2010

More Citibank news (not about credit cards though)

Did anyone else receive the mailing a few weeks ago that stated that starting November 1, 2010, a customer must have a minimum of $6,000 across all Citibank accounts to avoid being assessed a $20 monthly fee. I have a Ultimate Online Savings account with Citi. I threatened to close my account. Hear this, I was told since I have a stand alone account, it does not apply to me. If I opened an additional Citi account, it would be applicable. WTF? Why would a bank discourage additional business in this account?

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DDK

September 18, 2010

It should be a law that any new increase in interest rates is not applied to previous balance but only new charges. When you charge something your under the expectation that you will be pay it off at the rate at that time.

Waiting until someone has a large balance then jacking up the rate IS BAIT AND SWITCH and card companys should not be able to get away with it.

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