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2008-08-14 05:08:02

Citibank Credit Cards Rates Rising Again

Last year, when, Citi promised to its customers it would no longer keep practicing interest rate increase under the "any time, for any reason" clause, millions believed. The pledge received the slogan "A deal is a deal" and was never meant to be valid for the life of a credit card balance. Members of Congress and consumers groups applauded the credit company for its radical step towards meeting their customers' needs and agreed the announcement deserved great praise.

But together with its promise, Citigroup incurred painful losses of more than $4o billion in write-offs, which naturally affected its finances and put it in a bind. Such a great damage forces Citigroup to reconsider its promise of a more lenient policy.

Whether a smart trick of the company or its sincere intention to be friendlier to the customers, the pledge helped Citigroup avoid the stricter credit rules pushed by the credit card industry. The big promise, which also included elimination of universal default clause, made Citi the leader among its rivals.

Most of the major banks followed Citibank in abandoning universal defaults, but none of them agreed to miss out on revenues that could potentially be collected from "any time, any reason" clause. Maybe, that was a much wiser behavior on their part and if Citi had preserved the right to raise APRs for riskier customers, it would not be suffering from a bind right now.

The fact that Citi is reconsidering its pledge together with "A deal is a deal" slogan, and may soon reset its practice will mostly hurt risky cardholders. Traditionally, "any time, any reason" clause was applied to customers who might not only default on their credit cards but also showed any signs of financial stress and risk. The clause helped compensate for the risk a card company took working with risky customers.

Good credit customers who enjoy best Citi credit deals with lowest rates, no annual fees and credit rewards might not be affected by this change in policy at all. Citigroup executives had to recognize that "A deal is a deal" benefit was not duly appreciated by customers all the same because of the difficulty in reading the fine print and understanding APRs in full.

Citi is now determined to shore up its finances by charging higher rates to any customer likely to default. In view of the stricter credit legislation proposed by the Federal Reserve, it is twice as reasonable to restore "any time, any reason" practice.

Reminding you of the Fed's new rules, increased interest rates on defaulted credit cards will only be applied to newly made balances, allowing the first debt be paid off at the same rate.

The new rules would further cripple banks' power to make revenues at the expense of raised credit cards rates. It is not what Citigroup is striving for at the moment of tight credit and slackened economy.

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