That giant sucking sound you hear is Citigroup's stock price getting sucked down the toilet. This morning, shares were trading below $4 a share, reaching a 16-year low. Citigroup, according to the Wall Street Journal, is now mulling its options, including a possible sale of the company. The fallout from a Citigroup failure is unknown, but it's fair to say that it would be devastating. In the meantime, however, Citi's credit-card customers already appear to be taking a hit because of Citigroup's trouble.
A week ago, Citibank said that it would start raising interest rates on a percentage of its credit-card customers. While Citibank did not place a number on how many cardholders would be impacted by the change, a source told the Wall Street Journal that less than 20% of Citi's customers would be impacted. Customers, meanwhile, could expect an interest rate increase of about 3 percentage points on average (see story here). Although my evidence is clearly anecdotal, I don't believe that Citi's interest-rate hike affects less than 20%. Indeed, I have heard from a good number Citi cardholders, many of whom -- you'd think -- would be unaffected by Citi's interest-rate hike.
"I just got a notice today regarding my 21-year-old Citi card. I have never carried a balance on this card, have a credit score of 785 (I checked FICO today) on the report they checked and (pay in full) on this and all my other cards," a reader wrote on my blog Thursday. "Never late anywhere on anything, nothing negative ever on my reports." If Citibank is targeting fewer than 20% of its customers, one must wonder exactly how this reader got caught up in this mess. My reader continues: "The notice said that as of 11/28 they are raising my rate from 8.99% to 16.99%. I guess I thought I was immune and was really shocked." Given this reader's profile, I'm shocked as well. This isn't the kind of customer that should be seeing rates get nearly doubled -- especially if Citi is targeting less than 20% of its customers.
Another reader, meanwhile, had just recently paid off a Citibank balance -- but to no avail. "I have a Citi Platinum Select MasterCard and I recently received a rate increase notice in my monthly statement. I have been a Citi customer for 4 years and my rate has always been 8.9%," this person wrote. "The increase will take my purchase APR to 14.99%. My FICO score is 740 and I have never had a late payment to a creditor in the 17 years I've had credit. I have carried a balance on this card in the past but I just paid this card off last month."
Yet another reader, with FICO scores above 750, could not escape Citi's rate increase. "I have (a) Citi World Platinum MasterCard (like Visa Signature CL is not reported). I found a note in my latest statement - We are increasing ... with a minimum APR of 18.99%. I had 11.99%. I always pay in full and my last FICO score was 750+." See what I mean? If my reader accounts are true, and they have no reason to lie, especially when they're posting anonymously, it calls into question what Citibank is saying publicly.
One Citibank customer, who has carried Citi plastic for 15 years, wrote what a lot of my readers are beginning to think: "I suspect that they are going to increase the rates across the board. I can't understand how I could be one of their best customers yet be one of the 20% to have the rates increased," this reader wrote. "I think they are trying to pull a fast one on all Citigroup customers. Why should I be paying for their bad financial choices?" Good question. Anyone else buying what Citibank is selling?
To be sure, I did hear from some readers who probably did deserve to see their rates climb somewhat. Many of these readers are carrying balances. "I have a Citi Platinum and mine was raised from 6% to 14.99%. This is really frustrating as I have a $3,800 balance (my only debt)," an anonymous poster wrote. "I always pay on time, usually early. I have a good FICO score (around 750) and only one other credit card (with no balance)." I can understand Citi's rationale for upping rates on customers who carry a balance, but Citibank more than doubled the rates on a customer who, according to the post, has a FICO that's near 750. What I don't know is what that $3,800 balance represents in terms of utilization.
With the exception of a few readers (one of whom had been out of work for about six months -- and had been using a Citibank card to make ends meet), most of the comments came from people who likely should have seen their rates move up by three or four percentage points -- at most. In many cases, though, Citibank lifted rates more substantially, with many receiving new rates that were twice as high as previous rates.
Anecdotal evidence, yes. But I've heard from enough readers to think that Citibank's rate increase is affecting more than 20% of its customers. What's more, I'm finding it difficult to believe that the average rate increase is only about 3 percentage points. I couldn't find a single reader who had received an increase of 3 percentage points or less.
Editor's Note: I have now received a rate-hike notice as well. Read my story about it (link here).
Shares of Citigroup ended the day off 94 cents, or 20%, falling to $3.77. Whether Citigroup continues to exist as an independent company remains to be seen. For now, though, it has a slew of credit-card customers that are irate, unhappy, disappointed, and, in some cases, shocked by the interest-rate hikes they've received.
Between my email -- and the messages I've seen on my blog -- I'm wondering what's really going on at Citigroup.
Given the company's plunging stock price, all I can say is stay tuned. (Editor's Note: the U.S. government agreed to rescue Citigroup on November 23, 2008. You can read the story here -- link to story.)
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Friday, November 21, 2008
Citigroup On The Ropes -- Credit Card Customers Feeling The Pain
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43 comments:
Things being as bad as they apparently are, looks like a good time to hurry up and cash in the Thank You points and request a check from the Dividend Rewards Amex!
DM, I wonder how many others are thinking like you. I know American Express customers often think about redeeming their points before hitting the exits, but I haven't seen any of my readers even mention that yet.
Just another thing for them to think about.
I really think this is the beginning of the end of the US credit consumer market. I'm trying to be positive!
I was told by my mom that my brother a VIP COO with a huge company with zillions in yearly sales, and who has pristine FICO (I don't know the #), had his rates increased, plus his companys cards also increased.
If Citi goes under, then GM, Ford, and Chysler can't be too far behind.
I don't have a Citi or a Chase, as I'm not worthy enough in their eyes, only in mine.
I'm still keeping a watchful eye on the sub-prime cards I do have: Juni/Barclay, Wamu, Cap One, Hooters, HSBC (which just sent me a notice that if I'm bad I'll get the default rate,,,well on the advice of CM, I'm paying it of before that notice is effective and then sock drawer the card...or just pay in full.
I remember a line from the movie, "Midway", The actor, last name of Robertson (I can't remember his first name)said... "We waited, we saw...re: Pearl Harbor...the wait and see-ers will always get you.
I rest my case.
Thanks for the note, Cosmo. Citibank should have just come out and said that it's raising rates on everyone -- good and bad. That's what Nordstrom did. It was a business decision.
But this interest rate hike impacts less than 20%? Hmmmm.
My rate is going from 5.99% to a minimum of 14.99% on a CitiBank Platinum Select VISA I have held for 8 years. Never late. Never behind. Balance varied from $0 to $20,000. I decided to opt out. The customer service rep I talked to could give no reason why the rate was going to almost triple. "It's happening to a lot of customers," is all she said. I guess they don't mind losing me as a customer. When the economy recovers, does CitiBank think that the customers they mistreated won't remember what happened when the economy started to go south? I know I will!
Anon, this reminds me of American Express in some ways. Once hammered by Amex, will customers come back? The same question goes for Citi. Will customers, who have been great customers, come back after you've demonstrated that they're not worthy?
It will be interesting to see how this all shakes out.
This is so short-sighted. This is going to drive millions of people who are just keeping their heads above water, but able to make their payments - over the edge and into default. Then they get nothing.
Anon, you're right. Last time I checked, just about half of Americans pay their bills in full each month. Not talking about at Citi. Talking about card consumers everywhere. That means that the other half is carrying a balance. Citibank has 54 million credit card customers right now. Do the math.
This is going to end badly for customers -- if they don't opt out. If you opt out, you lock in your current rate and pay the balance off over time. No rate change.
Of course, if you still haven't paid the balance off by the time your card expires, then you'll likely have FICO to answer to. That's because card companies often report credit limits as $0 once the card is closed. Then it will make customers look as though they are completely maxed out on the cards.
There is no guarantee that Citibank will report the cards as closed with a $0 limit, but that's not something I would want to chance. Best thing is for customers to opt out if they can't handle the new payment that would be required under the new APR.
Then it's a race to make sure that you get the balance paid off before the card is closed.
my rates have were lowered on both citi accounts and so far my 4.99 BT for life is holding
Anon, your promo rates are safe. Citibank is attaching standard purchase rates. Those who are locked into promo deals will not have their rates impacted.
However, you could get a notice that your standard APR is changing, so that when your promo rates ends you go to that new rate.
I asked you a question on another of your blogs regarding the difference between the change of terms of my husband's card and mine.
I called customer service today and asked why my rate has been increased as I have been a good customer, blah, blah. She put me through to a supervisor whom after looking at my account lowered my rate to 3.99 for a 9 period billing cycle then it would go back to this new increase.
She told me this was an across the board change in terms and not personal.
Anon, congrats on getting that concession out of Citibank. That's the second or third time I've heard someone say that a CSR or supervisor said that the rate change affected everyone.
My guess is that the CSRs are just saying that so no one feels singled out. Fact is, that's not what Citibank corporate is saying. They didn't dispute the "less than 20%" figure in the Wall Street Journal.
That said, I am convinced that this rate hike affects more than 20%. But I am equally convinced that it doesn't affect 100%, either.
Thanks for the note. And congrats again on getting something that I don't think most customers would be able to get from Citi: a nice promo rate instead of a rate hike.
I still have questions about this Liptor change on my husband's card. I am carrying a BT on this card and I don't know what do. Should I keep it or opt out?
I figured I had nothing to lose by calling. Trust me, I was stunned when she offered me a better rate. She said she was doing it to help me the balance off quicker. The lady was very nice.
I too got hit with a 4% hike on a 7.9% standard apr on an account I've had for 7 years.
I called to complain, but it was soon quite apparent that this was not personal, based on my credit standing, but an across the board rate hike. The notice came in my Nov statement.
I rarely carry a balance on this card and haven't since 2006. My FICO's hover around 760.
Then reading the news, and learning that Citi might have to sell off parts of itself, I knew it was bad, really bad.
Flat out it should be illegal to change rates on purchases already made unless the consumer has defaulted. In all the bailouts and bungling of taxpayer dollars this isn't even being mentioned. If Citi wants to set the rate at 9.9% fixed with a default rate of 29% fine, if they want to offer a product that is prime + 1,2,10 fine, but enough with this change in terms from all of the card companies. They are ALL doing it, they are doing it to most all customers or will be doing it to all customers because they're all in dire straits.
It's a national disgrace that we're not doing anything to protect consumers. The terms shouldn't change because CITI's management is terrible and has almost run the company into the ground.
Anon, it's LIBOR -- not Liptor. Do a quick search to get up to speed on LIBOR.
Regarding balance transfers, those rates are immune from this rate increase. The new rate hikes at Citi affect standard purchase rates -- not promo rates.
That said, once the BT promo ends, the rate will go to the new purchase rate -- if you don't opt out.
The decision to opt out is a personal one, Anon. I can't tell you what to do. If your balance is too high, and you wouldn't be able to handle the new payment, then maybe you should opt out. But if the new purchase rate won't kill you, and you can handle it, then maybe you accept the rate increase. I just can't say how you should handle it.
If you do opt out, just remember that your rate -- that you have right now -- gets locked. It remains at the current rate until your balance is paid off. But your card will eventually be closed if you do opt out.
That's the balancing act that customers must deal with. If you accept the increase, you keep the card and it stays open. If you reject the increase, and opt out, then the rate stays where it is but the card eventually gets closed.
Only you, Anon, can figure out what you should do.
I wish you the best in whatever you do, though.
And if you have more questions, feel free to ask.
Green, the Credit Cardholders Bill of Rights would change the way that interest rates would affect purchases that are already made. If the legislation eventually passes, new rate hikes would not affect previous purchases.
I've argued, in previous stories, that these hikes are coming because the card companies know that their time is drawing to a close on these kinds of hikes impacting previous purchases. They're doing it now before the change takes place.
Sorry for not spelling correctly. I appreciate your advice.
Anon@10:01pm, thanks for the comment. And thanks for sharing your FICO score. I wrote a story today about customers just like you receiving rate increases. It makes no sense. Citi should not be interested in jacking your rates. And yet, here they are doing just that.
And thanks also for telling me that the CSR said it was across the board. I have not looked at my mail today. I'm really curious to see if I received a notice from Citi. If I do get a note from Citi, I will immediately pull my FICO score and write a story.
Anon, no worries. Just wanted to make sure you have the right name. If you searched Google you would not have turned up any results.
I must have been thinking about my cholesterol medicine.
I did Google LIBOR and have a basic understanding. I am not sure it makes a difference, but this change was on an AT&T card that just last week gave CLI of 3k. My card is the Citi Simplicity card.
I really do appreciate all the information. I am not very smart about all this.
Anon, don't worry about it. My site is pretty dang comprehensive. You could start from the beginning of my blog -- back in July -- and get up to speed on this credit game quite quickly.
I'm sure you're very smart. You just need to get up to speed on credit.
Best to you.
My wife has had a Cite MC for 20 years. We never carry a balance, have never been late on payment, and have stellar credit. We got "the letter" yesterday saying our rate is going to prime + 13.99, with a MINIMUM of 19.99 It was prime + 7.99 before, which was still too high, but since we never carried a balance we never did anything about it. I don't know if it was a smart move, but we opted out. Some things just need done because of principal. I hope Citi enjoys Chapter 7.
And I know I used the wrong version of principle. I hate when I do stuff like that.
RCM I got the same letter this morning, never below 19.99%. Don't worry we'll bail them out with taxpayer money so they can turn around and charge us 20%.
The problem we're having in this crisis is the separation that's been reported in incomes has completely extended to representation in government. They have no clue how tough the past year has been for small businesses and the average person - and by average I mean anyone making less than 250k a year. Gas prices killed the economy and in return it strangled off the big banks and the markets. Now they want a bailout after Exxon and the rest just walked away with hundreds of billions that didn't end up at the Circuit City's and Crate and Barrels because we couldnt afford to drive to the stores. There was no regulation of the rampant speculation that did just as much harm to this economy as the subprime crisis.
Citi may be too large to fail but why should we bail them out? They were wrong about all of this, the bailouts didn't stop the carnage it just slowed it down, maybe blunted it a little bit but it won't stop. I believe it was Barney Frank that said the day they did the bailout "we had to do this because they said the market would drop 2,000 points if we didn't" and here we are down 3,000. So why did we do it again?
Creditmatters, surely. They do this for the same reasons oil sold for $147, because they can gouge the public and they know they have all the government support they need. Do you think the top donors in each political party care if the APR for the average person is 24.99? They just want the free money train to keep going.
A majority of jobs in this country come from small businesses. NOT ONE THING has been done or even mentioned in regards to helping these businesses so that they can continue to grow and produce jobs. It's astounding.
RCM, as you said, it's the principle of the matter. You carry no balances, so opting out does nothing for you. Your APR is irrelevant.
If enough people opt out of these rate hikes, Citibank will rue the day that it embarked down this path. There won't be enough customers left on the back end when the company needs them.
Of course, with 54 million credit-card customers, it would take an awful lot of defections. Would be interesting to know the numbers so far (how many have opted out).
Green, well said.
Let me just throw one thing out there. Even though the market has fallen farther than Frank worried about, I will say this: the bailout -- if we can even call it that -- did allow for an orderly dismantling. Without these funds, the deterioration of these companies and this market would have been unfreakin believeable.
In some ways, having had a chance to think about it, this has been a managed failure. Psychology is important. I don't know what might have happened if full-blown free-market forces would have been allowed to prevail (by the way, I am a free-market advocate).
I'm just thinking off the top of my head right now.
CITI has received $25 Billion in TARP funds and now has a capitalization of under $20 Billion. Credit cards are the least of their problems; they have a bankrupt business plan and massive subprime debt which is still unquantified. What's the good news????? They're too BIG to FAIL; Washington will NOT let ANY of these big banks go under.
That said, anyone who carries a balance on a credit card is ALWAYS over the barrel with any issuer. For those who carry CC debt, I'd urge you to pay it down asap and go to a PIF strategy. Then the issuers can't play you for a chump.
ABBY
Abby, thanks for the message. You know that I agree with you on the PIF strategy. Took me a long time to realize that, but once I finally came around (three years ago), it was a real eye opener.
And you're right: Citi is too big to fail. But that doesn't mean it won't get swallowed up cheaply.
Thanks for posting.
I too received an increase to 14.99. I carry a balance, have never been late and have great credit. Unfortunately, these hikes will put me over the top. I have just been scaping by to keep up with the regular payments. I am going to opt out. I have the card till 2010, then I guess it will be bankruptsy for me and they won't get anymore money. How sad is this world?
Anon, sorry to hear about the APR increase.
Try to get that balance down. But, just so you know, even after the card expires, and is closed, you'll keep your current rate. The opt out process preserves your current rate -- all the way until your balance is finally paid off.
Hang in there.
So your saying that I won't have to have it paid off by 2010? I am so confused. I owe $8000 so I know there is not enough time to pay it off so I figured at that time something bad would have to happen. Unfortunately, I have 3 balances with Citi. One card says AT@T, but in the fine print I found Citi.
That's exactly what I am saying. Citibank says that even after they close the account that you'll need to keep paying -- but at your current rate.
Read this story on my site (and read the comments): Citibank To Raise Interest Rates On Its Plastic
And, yes, that AT&T card is underwritten by Citibank. Citibank underwrites a lot of cards. Home Depot is also underwritten by Citibank.
Just in case anyone is interested: Citigroup Saw No Red Flags Even as It Made Bolder Bets (story link here)
I have a FICO of 705 and 62% Uutilization. With my other card my utitlization is below 50. They raised me from 9.99% to 14.99% I am opting out and will have it paid off in one year, paying that off first before my BOA card. As far as I am concerned they are pricing themselves out of the market.
I think they are making a short term decsion in panic mode. I bet if we all opt out and bide our time they will come around in a year or two and lower the rates to where they were. If not publicly in mass, at least individually. A year from now is a very long time- especially in this industry.
I find with credit card companies if you try hard enough, are reasonable and polite, they always come around. They will have to in order to keep me as a customer- and I think they will want to!
Anon, hope you're right. In the meantime, get that utilization down. That 62% utilization is really harming your score. All things considered, that's not a bad score you have. It will be higher when you get that utilization under control.
As for all of us opting out, and exerting pressure on Citibank, it's an ideal thought. Won't happen, though. Too many people are dependent on their credit cards. Many, in fact, may not have enough backups to close their Citi card.
Anon, thanks for posting. When you get that utilization down, and pull your FICO score again, come back and let me know how many points you gained.
Take care.
The latest on Citigroup -- the government's potential involvement.
Here is the Wall Street Journal's take on the situation: Citigroup, U.S. in Talks to Create 'Bad Bank'
http://online.wsj.com/article/SB122747680752551447.html?mod=googlenews_wsj
And Bloomberg's take: Citigroup, Fed Said to Weigh Plan to Limit Losses on Bad Assets
http://www.bloomberg.com/apps/news?pid=20601087&sid=axVl1u9GKkx4&refer=worldwide
And the New York Times: Plan Begins to Emerge to Rescue Citigroup
http://www.nytimes.com/2008/11/24/business/24citibank.html
Hi,
I was surprised to see a rate reduction on my CitiAA, It is small (1 point), but still, in this market, a surprise. I have a small balance that recently expired from a 0% promo. My utilization is about 5% on Citi and 23% across the board with FICOs of about 730-750. I had called asking for a rate reduction a couple of weeks ago and was told, "NO." However, when I signed on a few days ago it had been lowered from 14.9 to 13.9%.
Thanks for the info!
Anon, that 1% drop was Citi dropping rates in response to a falling prime rate. I wish I could tell you that Citibank was responding to your request. As it turns out, all of us with variable rate cards saw our rates get lowered as the prime rate fell.
Many customers are now receiving rate hikes, however, wiping out any benefit that a lower prime rate afforded them.
I have now received a rate hike from Citibank. You can read the story here:
http://www.creditmattersblog.com/2008/11/citibank-to-raise-interest-rates-on.html
I posted this in another thread, but I realize that not every person will see that thread, so I am posting this in all of my active Citibank threads:
Here is the language:
"If you opt out of these changes, you may use your account under the current terms until the end of your current membership year or the expiration date on your card, whichever is later. We will close your account at that time. You must then repay the balance under the current terms."
This is where my law school training comes in handy. The first sentence refers to current terms. These are your current terms -- before an interest rate hike. So, they've defined "current terms" for us.
Now, go to the third sentence. Citibank is saying that you will have to continue paying down your balance -- even after the card is closed. You must pay under the current terms. Having already defined current terms, we know that it means current terms -- before the rate hike.
If Citibank tried to weasel out of that contract language, I can assure you that the consumer would prevail. It could be called ambiguous at best. And the court would weigh the evidence in favor of the consumer -- and against the drafter of the language (Citibank).
So, my thought is that your current terms are locked in -- even after the card is closed. A lawyer wrote that opt-out clause. "Current terms" has the same meaning throughout.
Just got some more incremental information from Citibank (I called and talked with a supervisor).
Here's the deal:
If you opt out, you will continue to have your current rate (prior to any rate increase). Moreover, your current rate will -- and can -- fluctuate with prime or LIBOR. Thus, even if your account is closed, you'll still see small fluctuations in the rate, because of prime or LIBOR.
Therefore, if you have a 6.99% rate right now, and you opt out, your rate will remain at 6.99% even after you close the account. But your current terms also allow for small fluctuations tied to prime and LIBOR. So, your rate could move higher OR lower, depending on market fluctuations.
NOW, moving to something else I just learned: if you opt out, but you miss a payment, go over your limit, or do anything wrong with the account, your rate could jump to the default rate. Again, your current terms allow that. And your opt-out terms would be no different.
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