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July 1st, 2009

Citi Raises Rates Before Rules Take Effect

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According to the Financial Times, Citigroup has increased the interest rate on up to 15 million credit card accounts that the bank co-brands with retailers such as Sears. The increase comes months before the Obama Administration’s credit card reform is scheduled to take hold.

The Credit Cardholders’ Bill of Rights Act, slated to go into effect in early 2010 — pushed up from the originally launch date of July 2010 — is designed to, among other things, prevent credit card companies from raising interest rates without the cardholder’s knowledge:

Holders of co-branded cards who failed to pay their balance in full at the end of the month saw their rates rise by an average 24 per cent – or nearly 3 percentage points – between January and April, according to a Credit Suisse analysis of data from the consultancy Lightspeed Research.

Citi’s response to the increase was the same as Bank of America’s regarding their recent increases in rates and fees. Financial institutions have cited that the cost of doing business has increased due to the voluminous defaults and volatility in the current market:

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.”

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.

We expect many credit card companies to rush in many of the practices that will be banned under the legislation while they still can. We urge consumers to guard themselves against rate increases by buying only what you know you can afford, paying your bill in full and on time every month, and read your contract so that you understand the terms and conditions of your account.

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2 Responses to “Citi Raises Rates Before Rules Take Effect”

  1. Mitch Says: July 5th, 2009 at 7:51 am

    These guys are all a bunch of weasels. They helped cause the collapse, and now they’re using the backs of some of their best customers to help them recover, even after getting bailout money. Citi is the worst; they even killed Smith Barney. I will never deal with them again.

  2. Tim Manni Says: July 6th, 2009 at 10:56 am

    Hey Mitch,

    I wonder if a few brands who have avoided the rate-raising spotlight will grab some extra customers since consumers are sick and tired of these rate increases. While it’s a legit claim in most of the sense — “raising costs is just part of doing biz in the current economic environment” — isn’t working for most consumers. I guess the best way to send a message to the card companies is to no longer do business with them. Good for you.

    Thanks,
    Tim

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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