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Citibank Rate Increases: Be Sure to Opt Out

Written by admin - 19 Comments

Here’s something to look forward to… In an attempt to offset losses in their global credit card division, Citi is raising interest rates for millions of customers. Interestingly, this move runs contrary to a promise that they made back in 2007 to Congress when they said they’d stop arbitrarily increase rates.

You should receive the notification of the rate increase along with your November statement. If you receive an electronic statement, then the notification will be sent to you in a separate mailing. The good news here is that you can opt out:

Citigroup cardholders will then have until the end of January to turn down the higher interest rates. If they decline the rate increase, they will pay down the balances on their accounts under the old pricing terms and will be able to continue to make charges until their credit cards expire.

After that, however, customers will have to reapply for a card or find a different lender.

So… Be on the lookout for a notice in the mail.

Source: NY Times via The Consumerist

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Published on November 18th, 2008 - 19 Comments
Filed under: Credit Card News

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Comments (scroll down to add your own):

  1. If you pay your balance in full by the end of the month, what do you care? AmEx increased my rates too. I don’t care – I never carry a balance. They can raise it to 99.99% for all I care. I use auto-pay of the full balance, so there is no way I’ll ever be late.

    “Citigroup cardholders will then have until the end of January to turn down the higher interest rates. If they decline the rate increase, they will pay down the balances on their accounts under the old pricing terms and will be able to continue to make charges until their credit cards expire.”
    The way I see it: citi is in big trouble. Their stock is plunging to under $4. If they go out of business, they’ll have to break a promise to a lot of bond holders of ever repaying their own debt. If they continue to have more losses they’ll have to lay off a lot more people than 53K they already plan to lay off. In this light breaking a promise to shareholders doesn’t seem that bad.

    Especially that credit is more expensive across the board now. The yields on corporate bonds are high as well i.e. corporate debt is more expensive too.

    Comment by kitty — Nov 23rd 2008 @ 6:23 pm
  2. I now vote for no bail out for citibank and let them go bankrupt.

    Comment by jeff — Nov 24th 2008 @ 6:37 pm
  3. “I now vote for no bail out for citibank and let them go bankrupt.”
    Sure Jeff. Let citibank go bankrupt, let additional tens maybe hundred thousand of people lose their jobs (in addition to 53K citi already plans to lay off). Let credit become even tighter – as would invariably happen as citi is huge, let other businesses go broke both because of further tightening of credit markets and the whole ripple effect citi’s failure would have on all economy, let Dow crash even more taking a number of smaller businesses with it. This is really smart. If you have any money in stocks, I am sure you’d gladly see to lose a lot more of it just so you can punish Citibank for raising price on the product it sells (yes loans are banks’ product) at the times when the company needs the money to survive and at the time the risks of lending money (i.e. the expense of doing business) are high. And to keep paying salaries to people most of whom don’t set interest rates. Since you probably work for someone, I am sure you wouldn’t mind losing your job which for many people would happen if Citi collapsed. And not only people who work for Citi.

    In case you didn’t know banks aren’t in charity business. They want to make money not lose money. So when their own expenses go up which in case of banks means higher rate of defaulted loan, they sometimes have to raise prices on products they sell (loans). If you don’t like their terms – don’t buy their product. They give you an option to opt out. There are plenty of 0% offers around for those with good credit. If your credit is bad – why, then you are a high risk customer. High risk = higher cost of loans.

    Comment by kitty — Nov 25th 2008 @ 12:33 pm
  4. It’s all subjective. The credit card companies lower your limit, raise interest rates to 30% because they have lowered your limit which lowers your fico score which they point to as “increased risk” and now the debt you planned to pay off in 2 years will now take 10 at the same monthy payment. As you pay down that debt they lower your limit (& thereby your Fico score) and hold you hostage as a more reasonable lender cannot qualify you for an account with them on better terms. That’s the game being played right now and it’s not right. When interest rates (credit freeze non withstanding) are at historic lows and the credit card companies manipulate consumers fico scores to trap them in high interest debt knowing full well that their is no ‘real’ risk anymore – as the treasury gaurantees any unpaid debt using future taxpayer funding to borrow money to give to the lenders, well guess what – soon EVERYONE is a “high risk client” irregardless of past history of responsible borrowing. Chew on that for a bit.

    Comment by Buubs — Nov 26th 2008 @ 5:02 am
  5. Kitty,
    You are dead on. If you do not like their product, find another. I do not carry a balance and canceled my account with CITI, why run with a dying horse. CITI will raise interest rates, people will opt out and leave for another lender, and CITI will eventually shrink or go under.

    I do disagree that CITI should get a bailout due to bad practices. They are the ones who made the mistakes, not their clients, and certainly not the tax payers. They upped my limit to 60k before I called and had them lower it. I could not repay 60k in debt in a reasonable amount of time. That shows their foolishness if nothing else does. If they are a smart business that will survive, they need to show a new business model, a solution to their current problems, and a reasonable interest rate that we will loan money to them at.

    I am thinking an adjustable rate starting around 14%, balance transfers at 0% for 12 months and a retrograde interest payment after that time period. Sound fair?

    Comment by Bill M — Nov 28th 2008 @ 1:18 pm
  6. Bill M.
    You make some good points. One thing I’d like to mention is that I don’t think many people have good understanding of the mechanism of this crisis and specifically why there are losses.

    One thing to keep in mind is that when they talk about Citi and other banks losing money they don’t talk just about losses attributable to loan defaults. If this were the case most banks would’ve been able to write off these losses without much difficulty. Most mortgages are still fine and the interest they bring is more than enough to offset these losses. I think when you talk about Citi’s finding another business model, you may think in terms of their loan losses due to defaults and you think Citi should come up with better business practices. This is a little too simple.

    Unfortunately, the losses experienced by banks are much larger. These are losses attributable to the fall of value of collaterized debt oblilgations or CDOs. Citi bought a lot of these obligations at the time when their value was still high. This was their main mistake. Since nobody wants to buy these CDOs now, their value fell way below real value of loans represented by these assets.

    Here is how banks work. They take your deposits. They pay interest on your deposits. Then they put some of the money in reserve and invest the rest of the money in loans. Banks can also buy commercial paper – such as CDOs. By law banks are required to be properly capitalized i.e. they are supposed to keep a certain amount of money and assets in reserve before they can lend. If the value of assets held by the banks drops, the bank has to add money to reserve before it can lend i.e. before it can do business. If the bank cannot put enough money in reserve, it cannot lend money.

    Assets that banks have have some value. The question is how does one estimate the value of CDOs? There are several ways. One is mark-to-maturity meaning that one estimates potential value of loans if the bank keeps these loans until they mature. Another is mark-to-model i.e. having some model of future cash flows as well as some estimate of number of loan defaults. And then there is mark-to-market. Mark-to-market states that you have to estimate the value of these securities based on their current resale value on the open market (even if a bank doesn’t plan to sell them). Not that long ago (I read it was in 2007) SEC decided that banks should use mark-to-market for the CDOs.

    This sounds really good in theory. In practice, though, this method caused overestimation in their value (and hence banks’ profits) when times were good and the great decline in their value when times started to get bad. But every time the value of these securities on the market declines, bank has to add more and more money in reserve to compensate. This leaves less money for lending. Banks also have to report the decline in value of securities they held as a “loss” even if the loss was only on paper. This caused banks to want to get rid of CDOs causing their value to drop even further. Until at the end nobody wanted to buy them for more than pennies on the dollar – even though most loans represented by these securities were still fine. But many of these CDOs contain mortgages that still bring money. In fact most loans are just fine. Selling them for pennies on a dollar will wipe out the banks holding them.

    This is by the way the reason people’s credit limits get cut. Banks don’t know how far the value of assets they hold will drop. The banks are not allowed to lend more than certain number of times more than the value of their assets. By the time a credit card holder can get close to his limit, the value of bank’s assets can drop so much, the bank may not be allowed to lend that amount. Same with higher interest rates – banks that have a lot of exposure to CDOs need to raise money to allow for further drop in CDOs’ value.

    So what happened to Citi? Citi bought many CDOs a couple of years ago. They thought it was a great investment – most of these CDOs were rated as AAA back then and their value kept going up. But in 2008 with mounting loan defaults and declining real estate prices, the value of these obligations dropped. Because of mark-to-market rule Citi had to report this loss in value as a loss. Sure, for the moment (and with past government funds) Citi had enough. But investors didn’t know if further decrease in these assets’ value will mean more losses for Citi. So they didn’t believe Citi’s assurances that they are OK. And their stock dropped. This wasn’t as much their real problems as the lack of confidence in their future ability to handle further loss in CDOs value.

    Then there are credit default swaps – a type of “insurance” that you can buy on these CDOs. It’s not really insurance in a sense that you don’t have to be a CDO holder to buy it. I, for example, can buy a credit default swap for the CDOs you have. Then as the value of your CDOs goes down, the value of my credit default swaps goes up. I am betting on your losses. If I want to short Citi stock, I can short, spread a rumor they are in troble, drive up a value of credit default swaps, short again. The value of their stock will drop. I am not sure if there was any rumor spread, but endless shorting did contribute to the fall of Citi stock. Also, the value of credit default swaps against Citi’s CDOs went up by a lot at the time Citi’s stock was going down.

    Now, Citi could still operate even when their stock was at $3.7. But this type of fall of stock causes the lack of confidence in the bank’s solvency. If people don’t trust a bank they remove their deposits. Especially rich investors with very large deposits. Banks cannot operate very well without confidence. Citi cannot just “find another model”. They need money in reserve before they can do any kind of business. More importantly, they need people to believe that they would have eough capital even when CDOs’ value falls again.

    As to bailout – Citi is much bigger than Lehman and Lehman’s fall started the whole mess. Citi’s fall would cause a) a lot less money available for lending which would continue to drive perfectly good companies (non-financial) out of business b) a lot of investors’ losing money c) a lot of money paid by FDIC d) many insurers going under as they have to pay for credit default swaps e)millions unemployed, so the government would pay either way as unemployed people don’t pay taxes. Letting Citi fail was really bad; it would be bad for all of us regardless of the industry we work in. Basically, it is cheaper to bail out Citi than to let it fail. Cheaper for all of us.

    Comment by kitty — Nov 29th 2008 @ 7:13 pm
  7. Citis continues to “NOT GET IT”

    They are running off the best customers. I spend, and pay off deep into the six figure range every year on my Citi cards.

    They don’t want my merchant fees? Come on get a grip.

    They are in panic mode and not thinking long term.

    Marc

    Comment by marc — Dec 8th 2008 @ 10:57 am
  8. Does anyone have the number you are supposed to call to opt out? My wife shredded the mail-out. Thanks!!

    P.S. I don’t know why citi would do this, I almost missed it… looks like I’m going to go back to using my BOA card.

    Comment by dan — Dec 31st 2008 @ 2:18 pm
  9. I too am a citi customer annoyed with my huge rate hike. I plan to opt out, but my brother told me that opting out and closing a card puts a negative ding on my credit score and it erases all my good credit history of paying on time. Is this true?

    Comment by Sarah — Jan 7th 2009 @ 8:01 pm
  10. As someone who pays their bills on time I too am getting letters from most of my credit cards that they are raising my interest rates. Not just a little but a lot. Aren’t they getting their money at 0% from the Feds?
    Everybody just stop paying your credit cards and mortage payments. Soon we will all get a bailout and those greedy bastards will be begging us for their business.

    Comment by JS — Jan 29th 2009 @ 8:13 pm
  11. Kitty actually has it right except for one thing. Forgot to include that it was poor management that caused all of this. The handwriting was on the wall for this collapse long before it was even made public. Anyone with common sense could have seen that Wall Street was highly inflated. Fortunately I work in the housing industry (building and construction). I watched how people who couldn’t afford a 100,000 home were getting loans of 300,000 or more. Our job, however was to build these homes. We were getting paid. But we were also smart enough to expect the roof to come tumbling down. I rid myself of all stocks save for a few and probably lost a few thousand as my timing was not perfect, but at the same time, I didn’t take a hit like so many others did and lost 60% of my worth.

    Prince was an idiot and Pandit is no better. They are doing this because of their global division is in total chaos. Right now, management has no clue what to do. They are grasping at straws. But from the many blogs out there regarding what Citi, as well as other major banks are doing with their rate increase, this strategy might not work. If they alienate too many people and they see their balances transferred as I did, this is going to hurt them badly. When you ask people you lent money to, who barely could afford to make their minimums at a lower rate to pay a higher rate, you are asking for default.

    I can agree that many people have no business with a credit card as they are irresponsible with them. If I were in charge, the first thing I would do is look at risk assessment management, which in the case of Citi was grossly mismanaged. They made bad decisions with their CDO’s as well as CDS’s. They saw an opportunity to cash in but neglected to maintain a proper balance to ensure that if things went bad, they wouldn’t take the hit that they did. It was a classic case of GREED. They weren’t happy enough make a few billion dollars. They wanted 10’s of billions. And now they want us to pay for their mistakes.

    As for them going under. I wish they would. In a free society, like any other business, there will always be responsibly managed institutions that can step in and pick up the slack. This isn’t as easy as I make it out to be but it is done everyday. If I ran my company into the ground because of poor management and decision making, no one is going to toss me the money I would need for basically free. My competitors would swoop in like vultures and take away my clientel. That’s the way a free-market system works. And that can be done to any business on any scale.

    Without sounding socialist (which I am not) stricter regulations need to be placed on any institution that if fails, can cause economic turmoil to our country. When a company grows so large that it can affect an economy the size of the United States, it needs oversight. Not just the whims and desires of a board interested in it’s own interests. This would insure that these companies remain solvent. We all want to make as much money as we can and that is a given right in the United States. But the line between GREED and it’s inherent failure can’t outweigh the economic future of the masses.

    Comment by Mike — Feb 1st 2009 @ 10:42 am
  12. My Citi card is going from 9.9% to 29.99% so I opt. out. It’s bullsh-t and I hope they go down !

    Comment by bill — Oct 28th 2009 @ 12:03 pm
  13. I didn’t opt out a year or so ago when they raised the rate a little bit (11% to 15 %), and I understood when my credit limit was lowered in the midst of the financial crisis, but the recent rate increase to 29.99% has lost them a customer. My account was in good standing, and had citibank given any thought to customer satisfaction, I’m sure they would not have imposed such a rapacious interest rate on customers across the board (according to the news). This is the sort of move that seems destined to backfire in a big way.

    Comment by Martha Hathaway — Oct 28th 2009 @ 4:30 pm
  14. I think the people that are opting out are missing the point. If you are mad at citi then the best thing you can do is stay in the program and just not use the card very much or at all. This has two benefits, first it maintains your credit score which is most important and second it costs them more money to maintain your account, send statements, etc.

    So you get a little bit of revenge and you aren’t dinged on your credit score.

    Also depending on how the legal changes go they may be forced to reduce those rates in the future. Not holding my breath but you never know.

    Comment by Anne — Nov 9th 2009 @ 5:39 pm
  15. BE ADVISED!
    I opted out via Phone about two months back per the instruction in the memo. My APR is now 25.99% and every time I call, they tell me my rate is my old rate but the statement has not picked up the correct rate yet, do these people think were all idiots? My Credit score is almost 800, I ALWAYS pay my bills and my prev rate was 5.99% for the last 5 years and now they add on 20% because of their ENRON’esque book keeping and greedy execs. Why do the middle class hard working people have to float these scum bags, they force their cards on you like Viagra and continue to pay they execs in gold, what’s wrong with this picture? That is why this country is going down the toilet; everything is corrupt/out of control from the top down.
    To quote Patrick Swaze (RIP) “WOLVERINE!”

    CITI LIES like all the rest!

    Comment by TodinMS — Nov 12th 2009 @ 1:55 pm
  16. There are some great conversations on this site! I want to thank everyone for your comments and for giving me a better understanding on what is happening to my credit. I am just like everyone else here, in that I am experiencing a change in my interest rate but my institution is Navy Federal Credit Union. My question is, what can I really, truly do about this? Legally? These companies are acting unethically and unmorally and I want to hold them accountable for their actions instead of paying them more money. I would appreciate anyone’s thoughts .10 cent worth (inflation) on this.

    Comment by Matt — Nov 20th 2009 @ 12:16 pm
  17. If every consumer with good credit called Citi to cancel their card they would be left with the dogs that can’t get any other cards and watch their best customers leave. Now “every” is unreasonable to expect, but if 5% left they would notice, and if 10% left maybe those MBAs that came up with the plan wouldn’t get their multi-million dollar bonus this year.

    I know I called and cancelled my card, and let them know why. I opened an account with Chase that is under 10%. Vote with your pockets, people!

    Comment by Mike — Dec 26th 2009 @ 9:40 pm
  18. What are the terms and conditions of opting out? I haven’t heard exactly how this works and if there is any ‘fine print’. How do they work this? How do they bill you for payments–as in do they hit you with huge payments each month or something you can afford? Do you have only an alloted time period to pay off all of the charges? Can someone please enlighten me??????

    Comment by Sandy — Jan 8th 2010 @ 1:40 am
  19. I’ve been a Citi Card holder for alomost 3 years. They had a thing on my card saying they were raising rates for several cardholders for the following reasons: late payment (I’ve never been late), overlimit charge (I’ve always been well under my limit) and if a checked bounce. (that has never happend either). It was in my billing statement and since I did not meet any of the criteria; I did not think it applied to me. This week my bill came and my rate was hiked from 9.99 to 29.99. I have very good credit and I have never been late paying a bill since I was college. ( I am almost 40 years old) This rate increase results than more than double my minimum payment. They have definately lost me as a customer.

    Comment by Darin — Jan 23rd 2010 @ 7:37 pm

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