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.

The problem with credit card defaults is two-fold.  First, it creates losses for credit card companies which, in turn, lead credit card companies to raise interest rates, annual fees, and reduce the amount of available credit.  This ultimately leads to tougher approval standards, which limit the ability of consumers to lock in low rate balance transfers, forcing them to repay their credit card balances at higher interest rates than the current interest rate environment would normally dictate.

A large percentage, if not a majority of Americans have been hit with a rate increase or credit limit cut.  A clear majority have seen various fees, such as balance transfer fees or international transaction fees already increased.  Should the trend of rising credit card defaults continue, more Americans should expect to see an increase in annual fees (which is not covered by the new credit card laws) as well as decreases in the quality of rewards programs.

A further increase in credit card default rates may make credit even less accessible than it is today, leaving consumers stuck repaying credit card debt at elevated interest rates of as much as 29.99%.  Lets hope the default rate stabilizes, as increased losses incurred by credit card companies will surely be paid for with the money of consumers who actually pay their bills on time.

Source:  http://www.reuters.com/article/BANKSL/idUSN1650495720091116?pageNumber=2&virtualBrandChannel=11604&sp=true

Unfortunately, Bank of America will not be the only company charging annual fees.  They are just the first company to announce that they will charge fees.  A decade ago, many credit card companies charged annual fees.  These fees disappeared when increased competition led banks to drop fees and offer long term 0% APR offers.  However, as credit card companies seek out ways to profit from lending after the new laws take effect, the annual fee may become increasingly common, and credit card offers without annual fees will likely come with higher interest rates and no rewards programs.

Credit card companies have already started charging higher interest rates to all types of consumers, including those with excellent credit.  In fact, current interest rates are around the same level they were two years ago when the Prime Rate was 4 percentage points higher.  Ultimately, these higher interest rates, along with annual fees and trimmed down rewards programs are likely to become commonplace in the coming months.

The question is thus not whether annual fees will be common, but when they will become common and how high will they go.  A $29 annual fee is reasonable; a $99 annual fee is not.  Of course, if those annual fees are combined with lower interest rates, it may be worthwhile to pay one.  However, if interest rates and annual fees continue to climb, the people banks want to have as customers will turn their backs and use cash or debit cards.

Hopefully, the backlash against Bank of America credit cards with annual fees will lead other companies to abandon the idea.  Unfortunately, many people who carry credit card debt and can’t get a balance transfer credit card are likely to have no option but to pay up.

Along with interest rate increases, credit limit cuts are likely to impact a majority of Americans, as more than 50% of banks have cut or signaled that they will cut credit limits.  For some, credit limit cuts are nothing more than an inconvenience.  For others, it can devastate credit scores and rob them of the much needed safety net available credit can provide during rough times.

In the past, consumers who wanted to escape rate increases or mitigate the damage caused by a credit limit cut could apply for a new balance transfer credit card that offered a 0% rate to decrease interest expenses and increase available credit.  Unfortunately, that has become a more difficult task, as 47% of loan officers say they have or intend to raise the credit score requirements for prime credit card applicants.  For those who don’t fit the prime applicant profile, 53% of loan officers will be raising their rates.

Lastly, the issue of annual fees is popping up ahead of the implementation of new credit card laws, and while complaints about annual fees have yet to become widespread, 40% of banks reported that they had increase or will increase annual fees on credit cards.  This last issue is likely to gain steam going forward, as annual fees are still uncommon on most Prime credit cards.  A year from now, they may be a part of all credit cards.

The results of the Federal Reserve survey verify what many of us have experienced this year and, in regard to annual fees, point to changes we will likely see in the near future.  So, as I’ve said many times before, try to pay down credit card debt as soon as possible to avoid even more credit card company induced pain.

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.

As the days began to pass, I grew increasingly frustrated.  While hundreds of responsible card members were contacting me, I feared that less responsible victims of this rate increase may not have noticed or opened their rate increase letters.  I blogged and blogged, and thousands of people have read my thoughts on the matter.  Unfortunately, the readers of this blog were often searching for information on the rate increase or looking for a balance transfer credit card to transfer their Citi balances from.  The people that needed to read about this, i.e., the people with high balances and a tendency to toss junk mail looking opt out notices in the garbage, were not getting information on this situation.

Now, over two weeks later, the Citibank interest rate increase finally got a nod in a Wall Street Journal credit card article penned by Karen Blumenthal.  Although the increase is not the focus of the article, Ms. Bluemnthal does mention the rate increase in the second paragraph.  Not the headline American consumers deserve, but a head start.  (By the way, Ms. Blumenthal’s article contains some very good general information about the direction of the credit card market as well as sound advice to consumers.)

As I’ve stated before, the real problems with the Citibank interest rate hike will not be known until those who failed to read their opt out notices see their interest rates tripled in a few months.  At that time, consumers will have no remedy.  Thus, it is my hope that more mainstream news sources cover this story, as the general public needs to be made aware of this situation, as many of the people who will learn of the rate increase with their statements arrive in the mail may not be able to qualify for the type of 0% balance transfer deals available to consumers today, leaving them stuck paying interest rates usually reserved for people who fail to pay thier credit card bills.

Citibank, which recently notified many of its customers that it would be raising interest rates to 29.99%, was not mentioned as reason for this initiative, though one has to wonder if the Citi rate increase was the straw that broke the camel’s back.

Unfortunately, like just about every piece of credit card legislation passed this year, Senator Dodd’s proposal will likely provide little, if any, benefit to consumers.  Most credit card companies have stopped arbitralily raising rates and the most atrocious rate increase-Citi’s 29.99% fleecing-had already inflicted massive damage on the wallet’s of consumers.

In all likelihood, it is highly unlikely that any credit card company would pursue massive rate increases at this time, and Bank of America has already stated that it will no longer be hiking interest rates.  Thus, Senator Dodd’s new proposal takes on the sickly smell of political posturing and may ultimately provide little benefit to anyone other than the Senator.

Clearly, a freeze on rate increases would surely provide peace of mind to many consumers.  However, the rate increases that began when talk of a credit card bill accelerated along with the massive rate increases that followed the passage of this bill have left many of us with interest rates that can’t really go much higher.

Nonetheless, it would be rude not to thank our elected representatives for proposing legislation that was needed two weeks or two months ago.  Of course, its a thanks for nothing.

I searched Google news a few moments ago expecting to see results from the Wall Street Journal, the New York Times or USA Today.  Nothing.  And, since these are the only three papers anyone seems to read these days, that leads me to believe anyone who threw their rate increase notice in the mail will be in for a very big surprise when the new Citi interest rates take effect.

Ironically, the only mainstream news about Citi seems to focus on the fact that they cancelled a number of accounts last week without warning.  I found articles about this on MSN.com as well as in the Atlanta Journal Constitution.  Perhaps Citibank closed credit card accounts and sent rate increases hoping to distract the media with the less important, but headline grabbing story.  Honestly, however, I just can’t understand why the people who tell us what is going on in the world are too busy to talk about this unprecedented event.

I wish I was a conspiracy theorist and I could spin a tale that justifies the absence of this story from the media.  However, I think the real culprit is apathy.  Apparently, the fleecing of American consumers had become so ho-hum that a boy floating away in a balloon (or at least a fake story about that) is all they really care about.

Unfortunately, we all need to fall back on the tried and true method of word of mouth-tell your friends, tell a stranger who pulls a Citi credit card out of his or her wallet at the supermarket.  Tell whoever will listen.  If you don’t, then a representative in India will be telling them about it in a few months.  And that person will be told that 29.99% is the best rate available to them.  Hopefully, they’ll be able to transfer that debt to a balance transfer credit card.  But by then, a good rate may be 22.99%.

So far, I’ve found little more than a Huffington Post blog article, which for some reason rejected my comment on the story, and a small blog posting on MSN.  Other than that, no major media outlet seems to be interested in the story.  Have we become so accustomed to malicious credit card practices that this massive rate increase is no longer newsworthy. 

So I tried to contact ABC news.  No luck.  Apparently, no one seems to care that the financial well-being of tens of thousands of Americans is in danger.

And that’s my vent.  I am very privileged to have the opportunity to facilitate the sharing of information on this matter via the Balance Transfers Blog, but I am also deeply, deeply disappointed in the major media players for turning a blind eye to an event that has far reaching implications for everyone who carries credit card debt.  Shame on them.

1.)  Traditional opt out notices require those who opt out to accept an immediate closure to their account.  You opt out, the card is closed, and that is it. Period.  In the letter I reviewed, it states that the cardholder can use the card until the expiration date on the card.  This wreaks of trickery and my fear is that consumers who opt out but use the card after the opt out date will see their rates increased to 29.99%.

Consequently, I recommend that if you get this letter and choose to opt out that you CUT UP YOUR CARD and CANCEL AUTO-PAYMENTS.  While I don’t know exactly why the accounts are to remain open after the opt out, I think the safest thing to do is expect the worse.

2.)  The letter I reviewed offers a 10% monthly interest rebate.  On a 29.99% APR, that serves to reduce your rate to 27%.  This is clearly a ploy to prevent people from opting out, but if you’re reading my blog, I’m going to assume you realize what a joke that is.

3.)  Rewards, rewards, rewards:  The person who sent me a copy of the rate increase letter informed me he had over 80,000 Thank You Rewards points (also known as Thank You for Nothing Rewards or Thank You for the Bailout Rewards).  On page two of the letter, it states that all rewards will be lost when your account is closed.  Now, once again, because opting out and closing seem to be two different things to Citi, it is unclear when Thank You Rewards points will be forfeited.  However, I strongly recommend cashing in all rewards before you opt out just to be careful.

Ultimately, the only positive thing about this situation is the fact that many of you recieved this letter because you are good customers with good credit.  This means you can get a new credit card, do a 0% balance transfer, and are smart enough to opt out immediately.  Unfortunately, I learned that a lot of people ignore letters such as this, and I hope the mainstream media picks up on this story in time to alert others of this deplorable situation.

In case you haven’t had a chance to read this letter, here’s what Ken Stork (ironic name is real) delivered to mailboxes across America.

View Page 1 of the Rate Increase Notice (PDF, opens in new window)

View Page 2 of the Rate Increase Notice (PDF, opens in new window)