Overall, Citi may have proven to be the worst credit card company this year as hundreds of visitors have shared horror stories about interest rate increases of up to 29.99%.  And these are customers with good credit.  Despite these increases, there are worse credit cards than those offered by Citi.  So while I’d love to crown Citi the worst credit card company, the (dis)honor ultimately goes to First Premier Bank.

If you have good credit, you’ve probably never heard of this company or taken a look at their credit card offerings.  However, if you have searched for a credit card for bad credit, you’ve probably come across these offers.  And believe me, these cards make Citibank look as good as Discover Card, which is likely the best credit card company of the year.

What makes First Premier so bad?  First, the account set up fee.  It clocks in at $29.  Then, there is a one time program fee (not entirely sure what this fee is, but its there).  This fee will cost you $95.  Of course, there’s an annual fee.  That comes in at $48.  And to make things interesting, there is a $7 monthly serving fee which adds up to $84 a year.  Want to see your account online?  Add another $3.95.  And if you want to pay online or by phone, expect to pay between $7 and $11.

When you add these fees up, you get $256 which accounts for 50-85% of the credit limit provided to most customers.  Now, the interest rate puts Citi rates to shame.  Its only 9.99%.  However, the $256 annual fee is higher than that of the American Express Gold and Green cards put together.  And those are great credit cards with rewards programs.

Were it not for this fee trap aimed at consumers with bad credit, Citi would have easily won my vote as the worst credit card company.  But until they tack on absurd fees, the honors go to First Premier.  Now, as to the most unfair, unreasonable, and irresponsible credit card company, that’s honor Citi takes with ease.

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.

As experienced credit card users may have noticed, there just aren’t that many 0% balance transfer offers available today, and most of them only provide 0% rates for 6 months.  This is not ideal, as these offers now carry higher balance transfer fees ranging from 3-5%.  Gone are the days of 0% for 15 month balance transfers, not to mention no fee balance transfers and fixed APR for life balance transfers.  Today, balance transfer options are relatively limited.

The best balance transfer credit card available today offers a 0% APR for 12 months and charges a balance transfer fee.  While not ideal, this still represents a bargain compared to 0% for 6 month offers-or no balance transfer at all.  The best offer available as of today offers a 0% APR for 12 months and charges a 5% fee.  While the 5% fee would have been unheard of a year ago, this has become more common of late, as less banks are willing to take on new debt without extracting a pound of flesh first.

Fortunately, paying a 5% fee to get a 0% APR is still worthwhile.  A person with a $10,000 balance on a credit card with a 10% APR will likely pay around $1,000 in interest during a year.  With a balance transfer, the total expense is $500 for the balance transfer fee.  At a 15% rate, that same person would save $1,000 in interest, while at a 20% rate, that person would save $1500.  Yes, the savings are less than they were a year ago.  But saving $500 or more on interest and using that money to pay down credit card debt is a good deal no matter how you slice it.

For a while, it looked like balance transfer offers would all but disappear.  And, once new credit card laws take full effect in February, there’s a chance they might.  In the meantime, however, locking in a 0% deal still remains a great way to reduce interest expenses and work on getting out of credit card debt faster.

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.

Unfortunately, I’ve come across some deceptive ads promoting phantom 0% for 15 month balance transfer deals, however, the ads lead to pages with 0% offers lasting 6 months.  On the average, 6 months is the new 12 months, and 0% for 15 months, is the new 0% balance transfer for life.  Things have changed dramatically in the consumer credit world, and 0% offers were one of the first victims. 

At present, the longest 0% balance transfer offers last 12 months, and these offers are few and far between.  However, they still do exist (for more information, see the balance transfer section of this website).  Although getting a 0% for 12 is still possible, you should expect, nay, welcome higher fees, as this has become the new norm as no fee balance transfers and fixed apr balance transfers have also gone the way of the dinosaur.

Whether or not more banks will extend balance transfer offers to 12 months in the near future is a question only time will answer.  As millions of consumers faced massively increased interest rates this spring, summer, and fall, banks not only made it tougher to get approved for new credit cards, but raised long term interest rates and shortened the length of balance transfer promotions.  Recently, introductory rates have gotten longer, but long term interest rates remain high, and are likely to move higher when the Prime Rate, currently at historically low levels, begins to rise, thus triggering the variable element of non-fixed interest rates to increase.

In the interim, the smartest thing consumers carrying credit card debt can do is to take advantage of the longest available 0% balance transfers and focus on paying down debt as quickly as possible.  The days of jumping from one 0% offer to the next have come to an end, and more and more people are opening up their credit card statements to find that a once reasonable interest rate is twice what it once was.

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.

Whether or not the passage of the Credit Card Act was responsible for the unprecedented interest rate hikes that have left many Americans paying interest rates as high as 29.99% is an issue for debate.  I, however, believe the Credit Card Act triggered a domino effect, causing already nervous banks to overreact to the threat of more stringent laws.  This, in turn, fueled a nine month long parade of rate increases from just about every major credit card company, culminating in Citibank’s raising of interest rates to 29.99% two weeks ago.

Even without the new laws, credit card companies were facing massive losses and record customer defaults.  However, the new laws will change the way credit card companies do business, taking away risk controls and fee income that help offset the risk of unsecured lending.  Consequently, as the passage and implementation of the laws became a reality, credit card companies went into overdrive and interest rate notices became as common as pre-approved credit card mailings were two years ago.

Now, after the bulk of interest rate increases have already been passed onto consumers, Congress is looking to push up the implementation of the final parts of the Credit Card Act.  Unfortunately, it is too little, too late.  How much higher can Citibank raise interest rates?  Not more than 29.99%.  The same is true with most other banks, most of which raised rates this spring and summer.  Thus, with interest rates already through the roof, a move to halt rate increases on December 1st would be nothing more than a political sideshow.  And that show is financed by the increased interest rates we are paying in exchange for consumer protections that have done nothing but harm the finances of millions of Americans.

Sources:  http://money.cnn.com/2009/10/28/news/economy/credit_card_practices/?postversion=2009102816