Below is Irina’s experience with a bouncing credit card check from Citibank. Fortunately, she did not incur great expense. However, anyone considering use of these credit card checks should think twice before using them.

From Irina:

 1. My fiance has a credit card with Citibank. He is paying it off and has never incurred in default. His APR is about 7%.

9. Today, he received a letter from the bank apologizing and saying simply that we was no longer eligible.

As you can see from Irina’s story, credit card checks can create numerous problems no matter how diligent one is in verifying these deals. The best thing to do with balance transfer checks is to throw them in the trash. Irina was fortunate to have not incurred fees. However, I fear others have been much less fortunate.

The 1 percentage point increase by Citibank puts its cash advance fees on the same footing as Discover and Chase, who also charge 5% cash advance fees. Bank of America charges a 4% fee.  American Express and Capital One currently charge 3% fees which are the lowest among the major credit card companies.

In 2008, most major credit card companies charged 3% cash advance fees. By 2009, 4% fees became the norm. Now that Citibank has upped its fee to 5%, American Express and Capital One may follow suit. And there is still room to maneuver, as there is no government mandated ceiling on what banks can charge for either cash advances or balance transfers.

For the most part, consumers who use cash advances likely won’t learn of the increased fees until their bills arrive, though even this will require a little math. Unfortunately, 5% fees are the last thing consumers who make these transactions should be concerned about.

The main issue with cash advance transactions is the hefty interest rates they carry, which are often double standard purchase or balance transfer interest rates. The APR on these transactions typically range from the low 20 percent range up to 29.99%.

If twenty percent interest rates aren’t enough of a deterrent, the way credit card companies allocate monthly minimum payments should be, particularly for consumers who tend to pay only the minimum. Under the CARD Act, credit card companies can allocate minimum payments to whichever balance they choose. Thus, if you have a $500 balance at a 14% rate and $500 at a 29.99% rate, your credit card company will use your minimum payment to reduce the balance at the 14% rate while you continue to rack up interest at a 29.99% rate.

Ultimately, the increase in cash advance fees would be a positive if it deterred consumers from making these transactions. However, the increased fees will probably not be enough to discourage consumers whose desperate need for cash leads them to engage in these pricey transactions.

-Jeffrey Weber

Currently, the longest 0% balance transfer deals come from Citibank.  At 18 months, these deals are 30% longer than most competing offers.  A person who transfers $5,000 from a credit card with a 14% interest rate and qualifies for a 0% for 18 months can expect to save over $1,000 during the introductory period.  This is nearly $400 more than could be saved with a 0% for 12 months.

Unfortunately, not every applicant will qualify for the longest 0% interest rates.  In the fine print, Citi states that the lengthof 0% rates is based on a review of the applicants credit history and application.  Applicants that do not meet certain criteria may be approved, but offered a 0% rate for 12 months or even 7 months.  People with excellent credit should have no problem getting a 0% rate for 18 months, while those with good credit will likely be able to get a 0% rate for 12 months. 

Citi has two credit cards that offer a 0% APR for 18 months. Essentially, the only difference between these offers is the color of the credit cards.  Below are the details for these offers as of April 30th, 2010:

Citi® Platinum Select® MasterCard®:  Offers a 0% APR on purchases and balance transfers for up to 18 months*, based on a review of your application and credit history.  After the 0% rate expires, offers interest rates as low as 9.99% variable*.  Plus, approved applicants receive a $30 statement credit*.

Citi® Diamond Preferred® Card:  Offers essentially the same deal.  A 0% APR on purchases and balance transfers for up to 18 months*, a long term APR as low as 9.99%* and a $30 statement credit*.

Because this offer is new and credit card offers change regularly, it is probably best to apply for one of these cards sooner rather than later.  A month ago, the longest 0% balance transfer offers lasted 12 months.  The same could be true a month from now.

As noted in an earlier story about Citibank annual fees, the annual fee may be credited to certain accounts if spending is sufficiently high on the card.  However, many people have reported that they intend to close their accounts rather than pay the annual fee.

One serious drawback to closing these accounts is the impact such an act will have on credit scores.  Closing a credit card account, especially one with no balance, can increase a person’s credit utilization ratio if they have higher balances on other accounts.  It can also shorten credit history if this is the person’s only, or first, credit card.

Unfortunately, Citi is charging a relatively substantial annual fee, while other companies are continuing to offer no annual fee cards, making the decision to keep the card open a difficult one.  Thus, if one wishes to protect their credit score, one option to consider is opening a new credit card with a company that does not charge an annual fee.  This may offset the damage done by closing a Citi account, as it will increase available credit before the closing of the Citi account negatively impacts credit scores.  Opening a new credit card with a different company before closing the account may also result in better rates on the new card, as that account will be based on a better credit profile.

-Jeffrey Weber

This new development is likely a beta-test in which a range of customers will be slapped with a range of fees and terms.  Once Citi is able to guage customer reaction, they may initiate these fees on a broader scale or drop the endeavor altogether.  Unfortunately, figuring out Citi’s moves is never an easy task.

Charging an annual fee to customers who use their cards infrequently may be a larger trend this year-and one with consequences.  Consumers who do not wish to pay annual fees will likely opt to close their accounts which can, in many circumstances, adversely affect their credit scores.  Thus, just as the interest rate increases of 2009 took many excellent credit scores down a few notches, the imposition of annual fees may inflict even more damage, as the CARD Act leads banks to take actions that are essentially making America a subprime country.

I would like to bring to your attention a matter which may have escaped your purview.  In October of 2009, your company sent opt out notices to certain credit card holders.  Recipients of the letter were given two options:  close their credit card accounts and maintain their current interest rate or keep their accounts open and pay 29.99% interest, a punitive rate generally reserved for consumers who default on their payment obligations.  It is my understanding that consumers who failed to respond by the designated opt-out date would automatically have their rates increased. 

This week, I began receiving comments from consumers who, for one reason or another, failed to read or understand the opt out letters your company sent last fall.  Personally, I believe many of them simply mistook these notices for junk mail and tossed them in the garbage.  Regardless of the cause, these clients are paying dearly for the mistake.

Unfortunately, I have learned that Citi’s customer service department is telling some of these clients that nothing can be done to get their interest rates reduced from 29.99%.  One of your clients, who wants nothing more than to have her previous rate restored so she can afford to repay her obligations, informed me she was told to contact a credit counseling firm.  In other words, your company is turning its back on honest clients seeking to repay their debts.

You recently launched a website at new.citi.com, in which you appear in a video titled, “Our focus? Our clients. Period.”  In this video, the COO of Citi Cards states that, “customers are…the sole reason we exist.”  In the same video, a credit specialist from your organization states that, “we want our customers to feel like we care about them and we are going to do whatever it takes to help them get that way.”

I would like to believe that the message you are broadcasting to the world represents the true intent of Citi management.  However, it is difficult to reconcile your message of concern with reality.  Your customers are begging you to treat them fairly.  And your company is turning its back on them.

Mr. Pandit, I implore you to listen to the pleas of your clients and allow them to opt out of the punitive 29.99% credit card rates they unknowingly accepted by failing to open a piece of mail from your company.  If you truly care about your clients, this is your opportunity to show them that your public statements are more than corporate propaganda.

Regards

Jeffrey Weber

Yesterday, the first comments started to come in from people who missed the opt out deadline.  My fear is that many, many more people will be commenting.  Unfortunately, opting out is likely no longer an option.  In rate increase letters I have reviewed, the opt out date was November 30th.  This means that many people are just receiving their first bills with 29.99% interest rates.  And some who pay online or don’t examine their statements closely may not notice that they are being charged this absurd interest rate for months.

Without the ability to opt out, people who have been slapped with a 29.99% rate have no option but to do a balance transfer to a credit card that offers a low or 0% introductory rate and a lower long term rate.  The latter shouldn’t be hard to find, as very few credit cards charge their customers 29.99% unless they fail to pay.  However, the number of 0% balance transfer deals is very limited at this time and may become harder to obtain once the new credit card laws take effect in late February.

Consequently, I strongly recommend that anyone who has been slapped with a 29.99% interest rate immediately apply for a new, 0% balance transfer credit card and start the process of moving high interest debt to a new card.  With a 29.99% rate, monthly interest expenses on a $5000 credit card balance will balloon to over $100, with the yearly cost nearing $1500.  If that balance is transferred to a 0% APR credit card, you can save that $1500 and use it to reduce your debt by nearly 30%-clearly a much better option.

As long as low rate balance transfers exist, no one should be stuck paying Citibank 29.99%.  Just because you missed the opt out, doesn’t mean you can’t bail out of Citibank’s grasp and the sooner you do so, the sooner you’ll stop pouring your hard earned money into their coffers.

To learn more about current balance transfer offers and apply online, please visit the homepage of Smart Balance Transfers by clicking here.

Beginning in mid-October, Citi began notifying customers it would be raising interest rates to as much as 29.99%-for no reason.  Or at least no legitimate reason.  29.99% is a bit of a magic number in the credit card world as it is usually the rate reserved for people who default, or fail to pay, their credit card.  A few years ago, it would take at least two missed payments to get slapped with this interest rate.  Today, one missed payment can lead to a 29.99% interest rate with most credit card companies.  And with Citi, simply having their credit card in your wallet is apparently all it takes.

Visitor’s of Smart Balance Transfers have written hundreds of posts about this matter.  Most of the people slapped with a Citibank interest rate increase reported having excellent credit scores, low debt, and high credit limits.  Many had been customers for up to 20 years.  Unfortunately, in today’s credit environment, neither loyalty nor good credit histories have been enough to save people from substantial rate increases.

This, in turn, has made many people’s relationships with their credit cards very one sided.  The love is gone, replaced by hate and anger.  Unfortunately, credit cards are still and will likely always be a necessary evil.  They are extremely convenient and, when used properly, provide substantial benefits.  Thus, the key thing today is getting a good 0% credit card, not just any credit card.  And once you get a good credit card, be sure to keep balances as low as possible.  If you owe Citibank nothing and they raise your rate to 29.99%, the rate increase is irrelevant.  However, if you owe them $10,000, a rate increase can be disastrous.  In the post-Lehman economy, credit cards need to be used like charge cards or as short term loans.  This is the only way to avoid paying the price for the mistakes made by our banks.

To learn more about what others are saying about recent rate increases, see the article Citibank Interest Rate Increase Solutions which has over 50 visitor comments

Yesterday, a new breed of Citibank credit card complaints began pouring in, and these are just as disheartening, though seemingly less severe.  One visitor reported a rate increase to 23.99%.  Another reported getting a notice that their rate was increasing from 16.99% to 20.99% on the same day they got an offer for a .99% balance transfer.  A third reported that her rate was increasing from 12.24 to 16.99%.  This customer had a balance of $10,000 on her card, and the customer service representative encouraged her to keep her account open since the increase would only cost her $28 a month.  The customer service rep, apparently short on math skills, overlooked the fact that this amounted to over $300 annually.

Complaints about the Citibank rate increases that have been occurring have outnumbered the complaints levied against just about every other credit card company this year.  One visitor reported that she had to liquidate her savings and retirement to pay off her balance.  Another reported having to sell his shares of Citi stock (at profit, fortunately) to pay off his bill.  Others are simply confused.

Ultimately, the latest round of rate increases may end up costing consumers more than the dramatic 29.99% increases that flooded mailboxes earlier this month.  The reason these increases may pose a greater issue is that, on the surface, they are much less dramatic than the massive rate hikes.  Turning down and opting out of a 29.99% increase was a no-brainer.  But many people are thinking hard about what to do with 3% to 4% increases, as concerns for their credit scores come into play.

Unfortunately, a 3% or 4% increase in interest rates, especially ones that are already high, can make debt repayment very difficult.  At a 20% interest rate, every $1000 of debt will accrue close to $200 in yearly interest.  Thus, for those with good credit, opting out and applying for a new credit card may be the best option.  And for those with balances, taking advantage of a 0% balance transfer can really help reduce interest expenses and expedite the process of getting out of debt.  In the end, everyone must choose whether they want to do business with this company.  And if another credit card company will treat you better, then by all means take your business elsewhere.

Now, I don’t use my Citi card.  The APR is high, the rewards are lackluster, and I’ve already given them enough money via TARP, though haven’t we all.  My problem, however, is that I want the letter.  I want them to raise my rate.  And I want to leave my card open and never use it.

Fact is, I would have closed my Citi account a long time ago.  The only reason I keep it open is the fact it is one of the older accounts in my credit history and I don’t want to hurt my credit score.  Yet, when I open my mailbox and find no letter, I grow evermore scared that they will attack me in a different way:  with an annual fee.

Now, I have nothing but sympathy for everyone who has been hit with a rate increase.   Many people who have written in are enviable positions:  they don’t owe Citi money.  However, many others do owe them, and some owe them quite a bit.  Hopefully, they will be able to use another balance transfer credit card to take advantage of a 0% APR so they can pay down debt.  However, many will have to opt out, which could hurt their credit scores.

Nevertheless, as a Citi credit card customer who has not received a rate increase letter, I’m beginning to think that Citi will soon send out annual fee notices to people like me.  Since they know they can’t sqeeze me with a high interest rate, they surely will find another way to get cash from my wallet.  And an annual fee may be the next topic we discuss on this forum, not only for Citibank credit cards, but for all credit cards.

“Citibank credit card users across the country rec’d RATE HIKE notices this week – 21.99% !!!!! Seems the only way out of this soon to be illegal practice of BAIT & SWITCH is to “transfer” another $5000.00 to them!”

While this aggrieved customer may not be correct about a bait and switch, her complete posting contains some valid points.  What strikes me most is the way this offer tries to lure customers into staying with Citibank.  It is not a good deal.  Consumers can opt out and keep their old rates.  And if they want to do a balance transfer, there are good credit card companies offering 0% balance transfer deals lasting one year (you can view 0% balance transfer offers in the main section of this website).

Ultimately, consumers getting punished by Citibank with rate increases should go out of their way to stop paying interest to Citibank, whether by paying their bills off in full or transferring balances to another credit card company.  No one should accept a 29.99% interest rate unless they intend to never pay interest and no one should accept a 15% balance transfer offer when there are 0% balance transfer deals available.

Citibank’s decision to charge customers 29.99% is shameful.  It is causing Citi to lose their best customers and pushing other customers to the brink of bankruptcy.  So unless you want to help support this type of predatory lending, opt out of your Citi card, ignore the Citibank balance transfer offer, and transfer your balance to a company that won’t try to squeeze every penny they can out of you.