July 1, 2009
-
News: CitiGroup Raises CC Interest Rates
In a rush to implement changes before the new legislation aimed at curbing unfair and deceptive practices of the credit card industry takes effect, CitiGroup has announced it is raising interest rates on nearly 15 million credit card accounts. The increase will affect Citi's co-branded merchant cards like Sears and Macy's. Customers that carry a card account balance forward each will see an average increase of 24% which is approximately a 3 percentage point increase. CitiGroup states that ongoing account reviews are a regular part of doing business and often leads to interest rate adjustments. They maintain adjusting credit card interest rates, credit lines, products, and terms is standard procedure. Changes are made to meet customers' individual needs as well as to adjust for risk factors. Additionally, the rate increase reflects the bank's higher operating costs and the safeguarding of credit availability.
The announcement comes on the heels of CitiGroup's plans to relinquish 34% of its capital to the U.S. Government under the Term Asset-Backed Securities Loan Facility (TALF) program which uses taxpayers' money to bail out ailing credit card companies and other institutions. Citi's move to raise interest rates places the Fed in a compromising situation since they have been a strong advocate for credit card consumers. The bank's actions are predicted to charge up both sides of the argument and fuel political anger. At the center of the argument is the recent disclosure that in the wake of a recession and high unemployment, CitiGroup recently handed out employee salary increases.
The nation has experienced record high rates of credit card defaults which has motivated lenders to unfairly increase interest rates and fees. CitiGroup has been hit harder than some of its rivals. Supporters of the rate increase say that adjusting interest rates based on a customer's risk factors is a normal part of doing business. Others believe CitiGroup's higher rate of defaults is the result of bad business decisions and that the bank is simply trying to beat out the new legislation's inception. The government has proposed a new regulating agency with the main purpose of protecting consumers from this type of activity.