Wednesday, February 03, 2010

Citibank really is the Citi that never sleeps

Particularly when it comes to pending changes in credit card legislation. The Federal government got it write when they enacted the Credit Card act of 2009 which is designed to protect consumers from unusual changes in interest rates without cause or warning. This legislation is set to go into effect in about 3 weeks. Apparently about a month ago Citibank started sending out letters to cardholders to start gaming the system.

Let's say a consumer had an existing Citi credit card with a rate of 8.1% APR. The letter sent by Citibank raises the APR to 29.99% as of 1/31/10 (conveniently 3 weeks before the new legislation kicks in). However, if the borrower if pays the minimum balance on time, they will get a “credit” of 70% of the interest amount, bringing the APR down to 8.99%.

So if you are a borrower, you might think "well that's not that bad. In effect, my rate is only going up 0.9%".

But and this is the problem, if you miss a minimum payment then you are not eligible to receive the CREDIT. Now, you're 8.99% rate jumps up to 29.99%. This is exactly what this legislation was designed to avoid, but through some clever maneuvering Citi can still act like it is 2008.

This would be a great opportunity for some Jr. Senator from an unnamed northern state to demonstrate that he or she is not in the pocket of Wall Street like some other senators. I'm hopeful that the regulators and Congress will see what a blatant end-around the Credit Card Act this is.



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