Citigroup Hikes Up Rates Before New Rules Begin

In a recent statement, Citigroup Inc announced that, “We have adjusted pricing and card terms for some customers as part of our regular account reviews. These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit.” This statement comes just before new, stricter credit card regulation goes into effect.

These rate increases will affect roughly 15 million credit card holders, especially those who have cards that are co-branded with businesses like Sears and Macy’s. One report has found that during the months January through April, Citi raised rates by an average of 24 percent or 3 percentage points on customers who paid less than their full balance during those months.

According to the Financial Times,  Carolyn Maloney, a Democratic representative from New York and the author of the new lending rules, had sharp words for Citi’s actions:

“It’s hard to tell if rate hikes on existing balances being put in place now are the result of prior bad business decisions or getting in under the wire of the new law.”

Oh really, Ms. Maloney, what did you expect the credit card companies to do? Take the new restrictions and profit-reducing laws laying down?

As Douglas McIntyre on the 247wallstreet blog  says:

“It is hard to blame Citi for the move …Unemployment is likely to rise above 10%, and with part-time workers looking for full-time work and the chronically unemployed factored in the number is closer to 15%. Banks cannot afford to support what are likely to be tens of billions of dollars in losses as overleveraged customers walk away from obligations. The government has no programs to assist these consumers, nothing similar to its plan to make mortgages more affordable.

Citi has raised its credit card rates. Other financial firms will have to follow suit. The recession has taken too large a bite out of the consumer’s pocketbook for there to be another alternative.”

I think it is foolhardy to think that big, profit-seeking companies are going to eat the costs of tighter regulation. They ALWAYS pass on the costs to the consumer. Why don’t legislators face up to that fact and make laws that harness and redirect this corporate self-interest for the good of all, perhaps with incentives?

3 Responses to “Citigroup Hikes Up Rates Before New Rules Begin”

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