Citibank Comes Up With Elaborate Cash Back Offer That Reduces Credit Limit And Temporarily Suspends Card

Compared to what some other banks and card companies are doing to reduce their exposure to debt, we guess Citibank’s cash back offer isn’t that bad—it’s sort of a “let us help you help yourself get rid of your debt” scheme. It’s funny, however, if only because it’s such an elaborate way to get customers to self-select for a reduction in credit.

Here’s the offer Craig received today:

Now you can earn cash back in the form of a statement credit simply by paying above the minimum amount due on your account.

Paying above the minimum amount due on any of your next 4 monthly billing statements can earn you a statement credit equal to 20% of the amount you paid over the minimum amount due. You can earn up to $550 in the program.

How it works:

  • The ability to charge on your account will be temporarily suspended until your statement credit is posted.
  • Upon receiving your statement credit, your credit line will be decreased by the total amount paid over the minimum amount due, plus the amount of your statement credit.
  • Timely payment of at least the minimum amount due is required on all billing statements before earnings are credited.
  • Earnings will be credited to your account in one lump sum within 3 billing statements after successful completion of the program.

We get the part about putting the card on hold during the program; otherwise the entire plan could be rendered moot by a single charge. But the part about reducing your credit limit by the amount you paid extra seems like a random way to penalize customers for taking advantage of the offer. At least you’ll get paid something for it, though?

(Photo: boboroshi)

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  1. larkknot says:

    This sounds like it’s only a good idea for those people who have mountains of debt that’s starting to get out of control… for those people, not being allowed to spend on the card for a couple of months and getting 20% of their debt reduced may be a godsend, but for the rest of us, this plan is just crap.

    • Jason Giglio says:

      @larkknot: The thing is, the CC companies are only trying to reduce the credit limit on people who are in too deep anyway.

      I have lots of credit cards and not one of them has tried to reduce my available credit. I could probably call any of them right now and get a limit increase.

      • jasonkarns says:

        I don’t understand everyone’s negative response here. The program is a win-win for pretty much everyone involved. The cardholder gets up to $550 taken off their balance simply for paying extra. Citi is able to reign in some of their over-leveraged credit. The only downside is the lowering of the credit limit, which I would argue is rarely a bad thing for people carrying high balances. Sure, it could *possibly* raise your utilization. But only in cases where the card holder had a low utilization to begin with. Anyone with a high utilization (over ~90%) will end up with a lower utilization after the program because their credit limit is lowered by a max of $3300 while their balance would be lowered by potentially much more ($3300 + minimum payment for 4 months + whatever else extra they pay).

        This is the type of program every card company should be offering as an incentive to pay off balances. Every other card program in history is designed to *grow* balances (and look where that led us).

  2. gStein_*|bringing starpipe back|* says:

    step 1: take advantage of offer
    step 2: get a new card

    • Andrew Farris says:

      @gStein:
      Not this simple. When the credit limit decreases your percentage of available to credit in use may end up higher once you’re done with their offer, which will effect credit scores and make getting that other card more difficult.

  3. Cant_stop_the_rock says:

    “But the part about reducing your credit limit by the amount you paid extra seems like a random way to penalize customers for taking advantage of the offer. At least you’ll get paid something for it, though.”

    Not really random – the whole point of the program is to reduce the credit lines of risky borrowers without pissing them off. Giving them money and putting them in control of how much their credit line is reduced by is a good way to do that.

  4. sanjsrik says:

    I worked in finance and I don’t understand a cotton-pickin’ thing they’re saying here. And, i understand derivatives.

    Um, can we get that in English?

    • wickedpixel says:

      @sanjsrik: If I understand it correctly, say Joe has a card with a $5,000 limit and a $100 minimum payment. If he pays $500 toward his balance he’ll received a credit of $80 (20% of the $400 he paid over his minimum) and his card limit will be reduced to $4,520.

  5. H3ion says:

    If you pay the full amount every month, what happens? Can you still make this month’s payment and get the 20% kicker? (Of course if the minimum is $15 and you pay $1,000, you’ll reduce your credit limit by $985 plus the 20% kicker.)

    • Cant_stop_the_rock says:

      @H3ion:
      If you pay your bill in full every month, you probably won’t receive this offer. This is for their riskier customers.

    • rhys1882 says:

      @H3ion: What the guy above me said. This is the kind of offer that is only sent to people with large outstanding balances. It’s basically saying they will shave 20% off your balance if you pay it off and let them close your card.

  6. jeffbone says:

    Seems to me that Citi is in essence writing off a portion of the cardholder’s debt. Are there any tax experts here who could comment on the potential tax implications of this “credit”, if any?

    I also wonder what information will be sent to the credit bureaus on folks taking Citi up on this offer.

    • madanthony says:

      @jeffbone:

      I’m not a tax expert, but I don’t think it’s any different than a credit card rewards program or a rebate, neither of which is taxable income.

      20% means they are probably reducing interest, but not giving back enough to cut into principle, so it’s not like they are really giving you anything taxable.

      • mac-phisto says:

        @madanthony: i’d be inclined to think that this is reportable 1099-int income. typically, “statement credits” like this are reported to the IRS.

        still worth it, imo. not everyday you can earn $500 cash for paying down $2500 in debt.

  7. lostsynapse says:

    I wish Citi would send me this offer. Instead they decided last week that I was enough of a gullible idiot to double my credit limit.

    • tripnman says:

      @lostsynapse: Congrats on the FICO bump! (Assuming you don’t use the new found “wealth”)

      • hedonia says:

        @tripnman: They actually offered it to me on the phone after I made my semi-annual “lower my interest rate please” call. Maybe if you call they’re offer it to you, too?

    • Narockstar says:

      @lostsynapse: They increased my limit last week too. But it was totally out of the blue. I just got a “congratulations, we’re giving you a higher limit” email. Ugh, thanks?

  8. CompyPaq says:

    Uhh if I understand correctly, they are lowering the limit on the card to the amount owed. Wouldn’t that show up a 100% utilization on a credit report?!

    • Andrew Farris says:

      @computerwiz3491: Yes it sure will — people taking this offer are screwing themselves, but if they are already getting screwed by others then that might be sensible.

    • mac-phisto says:

      @computerwiz3491: no, they’re lowering it to the total amount extra you pay.

      this COULD result in 100% utilization if you were already maxed out, but at that point, does it really matter?

  9. haoshufu says:

    In simple terms, say you have a $10,000 limit with a $9500 balance with a $200 min payment. You take the offer and pay off the entire $9500, thus you overpay your min by $9300 + you get a $1860 credit back. However, your credit limit will become $10,000 – $9300 – $1860 = $-1160. You will also have a $1860 negative balance within 3 billing cycles. Did I get that right?

    • msbask says:

      @haoshufu: you get a $1860 credit back
      Except that you won’t get a $1,860 credit. Article says “You can earn up to $550 in the program”.

    • mac-phisto says:

      @haoshufu: max credit is $550, so i would presume that the max credit line reduction would be $2750 + $550 = $3300.

      it’s certainly possible that they would eliminate your card altogether if you decide to pay it off, but i doubt the program is designed that way.

    • rhys1882 says:

      @haoshufu: I can guarantee you they wouldn’t give you a negative balance. It may not clearly say that, and you could try to bitch and moan if they didn’t, but they wouldn’t do it. It says “can earn you a statement credit” not “will earn you a statement credit.” That “can” is to give them an out if someone tries to do what you are suggesting.

  10. Blueskylaw says:

    “Can earn you a statement credit equal to 20% of the amount you paid over the minimum amount due.”

    This statement does NOT say it WILL earn you
    a statement credit equal to 20% of the amount you paid over the minimum amount due.

  11. rhys1882 says:

    It’s a pretty smart plan if you ask me. Basically it says if you pay down a chunk of your outstanding balance over the next four months they will credit you with 20% of those payments. In return they get to reduce your credit line and act like they are doing you a favor (which they probably are.)

    So you have a $3300 outstanding balance with a $4000 limit. You pay off $2750 of it over the four months and get the $550 credit, to pay the whole thing off (plus or minus a few hundred for the minimum payments.) Now your credit line is $700. They pretty much shaved 20% off your statement to get you to close out your account.

  12. Tankueray says:

    I’m pretty sure this isn’t a regular credit card but an “attempt to collect a debt” and we didn’t get the whole story. This type of thing isn’t new. The company you owe the debt to offers you one of these cards to pay it off. Your limit is however much you owe plus a few hundred dollars. As you pay down the limit, you get the bonus to help pay it down faster, and you get to spend a few bucks with that extra few in the “limit”; and the limit decreases so the company has no fear of you spending it up again. So, instead of selling the debt to a collector for pennies on the dollar or settling for much less, they get the full amount and some interest, while you think you’ve made a good deal.

    Technically, it is a good deal. Your credit doesn’t have a charge off on it (although will still have some negatives), you’re doing the right thing by taking responsibility, and they’re helping you. (Although, the extra 20% probably offsets the interest they’ve already charged…)

    On the other hand, if this is some sort of “real” card offer, it’s a horrible losing situation for the lender. We all know by now they don’t like to lose.

    • Tankueray says:

      @Tankueray: Sorry, I re-RTFA… It’s exactly what I thought it was. From some of the comments it sounded like people thought this was a “real” card and not a “debt collection” card. (Hence the sucking itself into a black hole and being deleted from the universe vibe I got from the comments.)

      I swear I’m losing my mind. This is the third stupid comprehension thing I’ve done today. I wonder if I’ve recently had a concussion…

  13. John Maracich says:

    I agree that it is strange but it’s real. I got the same offer on a 0% interest card with no delinquencies. More than anything it appears to be a rather desperate attempt to get cash flow.

    But the wording is vague enough to be a problem.

  14. gino77 says:

    It sounds like an interesting idea, but if a person just has bad spending habits this rescue operation is just going to delay the inevitable. I suppose it is a half decent idea, but for those who spend vicariously its just a temporary easy out. There is better help out there for those people, companies such as this one are a better long term solution.