Citibank (NYSE: C) has sent notices to untold number of credit-worthy customers in the last two weeks that their interest rate will raise to 29.99%. The letters that customers have received says that the rate increase will allow Citibank to “continue to provide our customers with access to credit.”
Others that are more skeptical of the bank’s would suggest that Citibank is attempting to squeeze more profit out of their credit card business before the remaining provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) go into effect in February.
The legislation prevents card companies from retroactively increasing interest rates on the existing balance of a cardholder in good standing for reasons unrelated to the cardholder’s behavior with that card. As a result, Citibank and other firms are raising interest rates before that provision goes into effect. These interest rate increases will allow Citibank to earn hefty amounts of interest on its customers current balances and not have to worry that they will be unable to raise the interest rates down the line.
The Los Angeles times recently highlighted one customer that had their interest rate increased to 30% by Citibank. The customer, Ed Myska, happens to be the executive vice president of El Segundo’s Bank of Manhattan. Myska has excellent credit and one would assume that the vice president of a bank would have a pretty good idea of how to manage his money. Myska seldom carries a balance and never misses a payment, but he and untold numbers of others have received notices that their interest rates are jumping to 30%.
As a result of banks trying to dramatically hike interest rates before new regulations go into effect, some lawmakers are proposing that would accelerate the introduction of reforms to December 1st of this year.
Benjamin Bernanke, The current Federal Reserve Chairman, stated in a U.S. House hearing that speeding up the law’s implementation “could benefit consumers by providing important protections earlier than scheduled.” Bernanke continued, “card issuers must be afforded sufficient time for implementation to allow for an orderly transition and to avoid unintended consequences, compliance difficulties and potential liabilities.”
Fortunately for effected card holders, the best cash back credit cards, like the Fidelity Rewards American Express Card that provides 2% cash back across the board, are not with Citibank.