Citibank and Other Credit Card Companies Raising Interest Rates

Citibank announced yesterday that it was raising rates on about 20% of its credit card customers. Other credit card companies are doing the same and cutting credit limits.

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.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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  • Eric Paxson

    November 16, 2008

    When did Nordstrom raise interest rates? Where did you hear that? Will my Nordstrom store card be getting a new interest rate?


  • Paul

    November 24, 2008

    Ihave had 2 citibank cards for 5 years and have never been late. I do carry a high balance on one card. I just received a letter informing me of the rate increasing from the 8.2% to 24.% effective next month. What the .,!? Why penilize me with a rate increase because someone else screwed up on their mortage or lost their job? Do you want me to default and have to declare bankruptsy too? So I called citibank and they said to keep the rate at the same terms until the card expires and negotiate a new rate. Believe me if the card company wants the money so bad I'll find a way to pay them off and cut up the cards!

  • Christina

    November 25, 2008

    We have also had a citcard for about 4 years and just got a letter saying our rate was increasing from 10.99 to 16.99%
    We've never missed a payment on anything, so I thought this was BS.
    Maybe they shouldn't give a credit card with a $7500 limit to someone with NO INCOME like me!!! They gave me a credit card with a $7500 limit and I have no income at all, I'm a stay-at-home mom and use it to pay for my school books.
    Needless to say, we're opting out, paying our $3000 balance on the one card and cutting them up, after I collect my rewards, mind you!

  • polkaboy

    November 25, 2008

    I recently received the increase letter as rate will go from 7.9 to 14.9%. I've been a customer for 17 years with maybe one late payment. I carry a balance that pays them a decent return on their money. I will push them for a better rate. If this is how they reward long standing customers, then i'll move to another cc company. Thanks for the loyalty, Citi!

  • citiguy

    November 25, 2008

    I received a letter from citibank about the change of terms. Citi has decided to raise the interest rate from 7.9% to 14.99% right away. I have been a customer for the last 8 years. I do carry a high balance, but was never late or over the limit till date. If this is how citi wants to raise money by forcing everyone to pay up the balances to shore up their balance sheet, then fine.
    Do let the customers know that they are forced to raise capital because of market conditions. Not just change the rates without an explanation.
    Its time for citi to re-think how they value and treat their customers.
    Thanks Citi.

  • doughboy

    November 26, 2008

    they don't care about the american people....if people are having trouble paying stuff off do you think it makes much sense to raise interest rates to a ridiculous 24% my current rate is 9.4% not great but not bad and it's going to 24%. so much for the rescue plan. america is going straight to the toilet while big CEO's are sitting fat and happy while the little guys like most of us are bailing them out.

  • tmurph99

    November 29, 2008

    I just spoke to them and my rate is going from 5.99% to 3x that rate of 24.99% They told me everyone was getting 24.99%. Obviously that is a another lie from the credit card companies since people here say they are getting 14.99%! I have been a valued card holder for over 10 yrs and never late on a payment! 24.99% is just ridiculous!

  • CEOsAreRapingTaxpayers

    November 29, 2008

    This is unbelievable. I have had Citi for about 7 years and have NEVER been late and NEVER held a balance (paid it off monthly). So this obviously is a blanket increase for every customer. Let's let all of the hard working American citizens bail out these fat a$$ CEO's and executives stuffing their fat greedy faces with filet mignon on OUR money. Vikram Pandit ,CEO of Citi, lives in a $18 MILLION dollar apartment. I have an idea, sell your APT and give back half of that to the company that you are running into the ground. Charles Prince, ex-CEO of Citi, received a $40 million severance package!! WTF?! He runs a company into the ground, makes tax payers bail them out and he walks off winning the LOTTERY! WTF is wrong with this picture?

    This is ridiculous. We are headed for the toilet unless we WAKE UP AMERICA. Hopefully Mr. Obama will change things, otherwise, expect 1929 in 2009. The rich get richer and the poor get poorer.

  • lauren

    November 29, 2008

    I have never been late on my Citibank Cards. I refused the increase on one of the cards. On the other card, I have about 1,000 dollars on it. I too will pay off this balance and avoid Citibank. It is very unfair that they are going to penalize everyone because of their bad investments. It is clear that Citibank does not care about its good customers or any customers.

  • goinpostol

    November 29, 2008

    I got the notice today and can't believe it... my rate is going from 7.90 to 24.90 for no reason except for Citi's mis- management. I called and spoke to everyone I could and was told the same thing each time. " due to current market conditions blah blah blah." I still can't believe it. I want to choke somebody. No surprise with Citi though, I have gone through hell with them for the last year with my mortgage that they hold and they clearly have no interest in keeping valuable customers. If you stop making payments, then they will help you... real smart! I will do everything in my power to pay them any money I owe them as quickly as possible and never do business with them again. Thanks, Citi, for rewarding my loyalty yet again. Your very welcome for the thousands of dollars in interest you have gotten from me over the past years.
    I hope the government decides to change the terms of the bailout package they gave you and makes you pay them (meaning us the taxpayers) back at a rate higher than agreed. They should have let you go under like every other business that sh**s on their customers eventually does. That is how business works in the real world, you lose money and you go out of business. Pretty simple. Sad that even when I choose not to directly give you any more of my hard earned money, my tax dollars will bail you out of whatever trouble you get yourselves into.
    I would love to know how many people were affected and are leaving Citi because of it. I will certainly do all I can to take customers from them...

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