According to a recent article in The Huffington Post, Citigroup has gone back on its word to Congress that if its customers didn’t breach their credit card agreement it wouldn’t raise their interest rate.
When Congress was considering imposition of new rules on credit card companies in 2007 because of perceived abuses in their practices, Citigroup told Congress and any of its credit card holders who happened to be paying attention, that it would forgo the right to raise interest rates for no reason at all. Instead, it promised that credit card holders who did not misbehave, as defined by the bank, would not have their interest rates increased during the life of the card. Realizing that promises are made to be broken, Citigroup has now changed its mind. In November it sent out notices to customers advising them that it was breaking its promise. That was not how it phrased it. What it said was, if the customer had not enjoyed a rate increase in two years, he or she could expect to enjoy one in January.
What a nice new year’s surprise. Of course, Citigroup didn’t say it had lied. Rather, it said that in this “difficult market environment” it was necessary to increase rates. Of course, the fact that the “cost” of Citigroup’s lending had fallen by over 95% due to cuts in the Fed’s discount rate wasn’t mentioned. (For a discussion of this 100x increase in credit card company profits, see my article “2009: The Coming Meltdown. Part Four: Consumer Credit”.)
Unfortunately, Congress “punished” Citigroup by giving it even more bailout money.