Citibank is raising interest rates on some of its customers, according to the Wall Street Journal. A Citibank spokesman confirmed the rate hike, but didn't specify how many people would be impacted by the increase. According to a Journal source, the rate change is expected to impact less than 20% of Citibank's card portfolio. Customers who are affected should expect to see rates rise by an average of 3 percentage points.
Need to write an opt-out letter to Citibank? Use this one (link here)
Citibank is just the latest card company to raise rates on its customers. Last month, American Express said that it would raise rates by two to three percentage points on some of its customers. Nordstrom, meanwhile, recently raised interest rates across the board (link here), applying the rate increase to every one of its 2 million customers.
From the Journal story:
"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.
Nice to see that Citibank is allowing customers who opt out of the rate increase to keep their cards at their old rates until the card expires (and the card is canceled).
If you do happen to receive a rate-increase letter in the mail, you'll see something like this. Hat tip: creditboards (click to enlarge):
Notice that customers will continue to keep their old interest rate even after the card is closed. That means that if you still have a balance on the card when it ultimately gets closed, you won't have to worry about the rate getting increased. You'll be keeping your current rate. Often, card companies aren't so liberal.
Editor's Note: I have now received a rate-hike notice as well. Read my story about it (link here). Also, where does Citibank go from here? I have some thoughts about that too. Read them here (link).
Anyhow, customers should continue to expect card companies to reprice their portfolios. At some point, I suspect that rate increases won't even merit a mention on my blog.
The rest of the Journal story can be read here (subscription required).
The New York Times, meanwhile, is weighing in on the rate hike as well (a day after the Wall Street Journal's story was published). Eric Dash reminds us that Citibank made a promise back in 2007. Writes Dash: "After pledging that it would no longer reserve the right to raise interest rates at any time for any reason, Citigroup now plans to start raising rates for customers who have not had an increase in at least two years." Eric is absolutely correct. That's a promise that Citibank did make. At the end of Dash's story, he leaves us with a nice quote from Carolyn B. Maloney. “Banks appear to be repricing cards for economic reasons — theirs, not their customers’,” she said. “Apparently a deal is only a deal when it doesn’t cost the financial institution too much money.”
You can read the rest of the Times story here. Despite Pledge, Citigroup to Raise Credit Card Rates, Blaming ‘Difficult’ Environment (link here).