Citibank Invents "Pretend Rate" For Credit Card
Citibank has changed the terms of Victor's credit card agreement, and in the process they've created a bizarre rolling refund arrangement that will make his interest rate jump to 29.99 percent, except that actually it won't, eventually. Maybe. Update: Another reader sent us a copy of the letter, and the arrangement is even less favorable than we first thought (see below).
Here's what Victor wrote:
We finally got one of the letters we've been reading about on Consumerist, but this one has a twist.
Citibank is raising the interest on our paid-on-time, good status gold card to 29.99% on November 30, 2009. BUT, they'll give us a rebate on the last 10% of the rate 90 days later on a rolling basis if we continue to pay on time. So charging something, leaving it on the account will incur 29.99% interest on December 1st, but we'll get the 10% part of that back in March, and every month after that.
This seems very convoluted and is definitely annoying. For us, it means that we have a 19.99% rate, but with a 90 day perpetual delay. Fortunately we have a small balance on this card. We've decided to just pay off the card and stick it in a drawer before November 30th. This is too stupid to deal with.
But it turns out that what Citibank is offering isn't a 10% reduction in your interest rate, merely a 10% rebate on the interest you paid under the new rate. Our reader Zclyh3 sent us a copy of the letter, which you can expand to read yourself if you like (click the image to enlarge). We copied the part that explains how the new plan works:
Earn interest back every month.
Here's how — make your payment on time every month.
Each month you do, you will receive a credit on your billing statement equal to 10% of your total interest charge on purchase balances. This can help offset the increase in your purchase APR. Start earning interest back in December and January, and you will see the full credit on your statement no later than February 2010 and monthly after that.
If in any month you do not pay on time, you may not be eligible to continue to participate in this program.
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Comments:
Read the letter more carefully ... I got this and interpreted it as they will rebate 10% of the *interest paid*, not 10% off of the *original rate*. I could be wrong (I don't have the letter near me to double check), but my interpretation was that if you paid $50 in interest, you would get $5 back ... not the 1/3 it implies.
Again ... I don't have the letter with me to verify the exact wording, so please correct me if I'm wrong!
@FTWGeek (With Friends Now): I hope you get disemvowelled. That frustrating run on sentence gave me a headache.
Note to self: Sell everything, pay off credit cards, start over. The banks are collapsing and trying to squeeze payments out of the remaining customers with balances. Ouch.
@imdgonz: If they're going to collpase, just buy stuff. You'll never have to pay it back!
This advice brought to you by the American Bankers Association.
More reasons to never carry a balance on a credit card. Or deal with Citi.
@imdgonz: Actually, no. This is pretty much in line with the way insurance companies treat people when when they don't want to cover you but are obligated to -- they're trying to force people that can pay off their balance to pay it off, rather than risk having the whole thing not paid back later on.
There are going to be more of these attac ... I mean, techniques by the CC companies in the next few months before all of the wek nwere protections take effect.
Good thing I don't have Citi.
Mitigating factor: the others aren't much better.
Time to check out my credit union's card!
Good lord... I got the same letter, but thought it would be 19% after all was said ad done... Between then, AMEX, and other companies raising rates, I will have to close out most of my cards leaving me with a severely F'ed up credit score....
Too bad Congress didn't impliment stronger rules that went IMMEDIATELY into effect!!!!
I got this letter a night or two ago too. I'm just moving my balance to a card that hasn't invented a too-convoluted-to-understand interest rate yet. I haven't yet decided if I'll close the account or not.
I heard a news report that made an excellent report. Credit card companies change terms and conditions with little to no notice to consumers all the time.
Why the heck did congress not to the same thing in return? By giving the credit card companies months before the new laws kicked in, they created a window for "dirty tricks" like this.
@imdgonz:
"The banks are collapsing and trying to squeeze payments out of the remaining customers with balances"
Um, Chase and Wells Fargo just announced record profits, the banks are NOT "collapsing". Thank you, chicken little!
Pronunciation: \ˈhwüsh, ˈwüsh, ˈ(h)wu̇sh\
Function: noun
Etymology: imitative
Date: 1856
: a swift or explosive rush; also : the sound created by such a rush -often used interjectionally
Is this perhaps a default rate under a different name? I'm thinking maybe they're trying to get around new restrictions on when they can impose default APRs.
I got the same letter. I do not carry a balance on this card (although I used to). I have a high limit and a perfect payment record. The rebate proposition is definitely for 10% of interest paid, not a 10-point reduction on the interest rate. Not altogether surprisingly, Citi still invites me to transfer a balance to this card at a one-year promotional rate of 1.99%.
@Ayarkay: yes, please stop kicking the kitteh. instead, shake it really hard & then throw it at somebody. extra lulz that way.
Annual fee(or increase in same), and inactivity surcharge for this "freeloading" credit card holder in 3...2..1...
@rellog321: That's becasue the lobbyists did their jobs. Congress truly is a f****d up system we have.
Next up!
Cue up the dumb customer complaining on local consumer action line tv segments:
"But I thought I was getting 10% back on my balance like a rewards thing that some cards have. I can't imagine how the balance got so high. They shouldn't be able to rip people off like this."
And attempting-to-be-helpful but equally-lame reporter:
"The Action News Customer Team investigated and found that this was actually a refund on the interest rate paid so that he actually would have only had a lower interest rate had he paid the card on time. As it is he is still liable for the entire balance plus late fees and over limit fees. Action News Customer Team recommends that you always read the fine print in credit cards terms and conditions so you don't get caught like this too. Action News Customer Team contacted the credit card company but a representative declined comment on individual accounts due to privacy concerns."
@snclfe: Watch out if you do. I called to close my account in January citing upcoming changes to the terms and conditions. They closed my account incorrectly so the terms and conditions changed on my remaining balance.
I'm still trying to get is straightened out. Citi tells me that they can't promise they will refund me the money they have been over billing me. This, of course, after they already said credits would be applied.
Different story every call. It never gets old!
Yeah seriously. By November 30th, my balance with Citi will be ZERO. Then, I'm not going to keep my card in a drawer...I'm going to SHRED it.
I can't close the account too because if I do my credit score will literally be shot. Chase canceled one of my cards with a $13,000 credit limit. There goes my score.
I now have three friends (that I know of) who have canceled their Citibank cards as a direct result of this letter. This, combined with the news that Citibank's been quietly firing other credit card customers makes me wonder there's some hidden logic to this madness- could they have intentionally devised a plan that would cause any right-minded people to close their accounts?
I hope "too stupid to deal with" becomes a regular tag as it could have easily described many other features on this site.
@imdgonz: If one of these card banks goes under someone will still be there wanting your money. Another bank, some company that bought all their debt. However if the bank owed you money, if you don't get it through the FDIC your probably screwed.
These credit card terms are written specifically to be confusing, hard to keep up with or to get as many people as possible to not be able to follow the terms.
The best thing people could do is to come up with a better way of purchasing things. Maybe more debt cards with easier ties to savings or revolving lines of credit.
The card companies certainly are not providing a usable solution.
Got the letter yesterday. I've got very little debt
and a FICO score in the 790s....
I immediately called to pay off and cancel the card
that's been open never late since 1999.
I went by the local credit union and got a 6.9%
rate Visa.
So I know it's said here often but USE
A CREDIT UNION.
Your article is incorrect. I spoke with a rep at Citibank. They aren't lowering you by 10 percentage points to 19.99% They are lowering you by 10% of 29.99% which equals 27% Oh joy oh joy. Since its still an unbelievable rate given I pay 11.9% on any balance, have had the card since 1979 and have never in 30 years paid late, it's a complete ripoff with or without any discount. Worse than ripping off individual customers, its a rip off of the American public, taking TARP MONEY to survive which was meant to ease credit. And here they are eliminating credit because no one in their right mind is going to make a big purchase and stimulate our economy if they are going to pay 30% interest. In fact anyone who has a current balance with a rate that is below 14%, I say close your account and keep your old rate and pay it off when you are able or if you don't care about your credit rating don't pay them at all. What they are doing in absolutely unconscionable and I wish the media would pick up on this. The guy at Citibank even admitted they were doing this to make as much money as they could. You see that new legislation regulating credit cards, only regulates notice NOT RATES. So if the Fed lends at the Fed window at 1/2 of 1% and they charge you 29.99%, they reap billions and can continue those big bonuses. Let the public be damned!
@Orv: I got this letter to, and it has a separate statement that the "default rate" will also be raised to 29.9%
@bohemian: How about some kind of plan where you can lay the item away until you pay for it. It needs a catchy name, though....
These are coming back in fashion again...
My 29.9% interest love letter from Citi was followed one week later by a letter offering 4.9% on balance transfers through July 2010.
WTF?
@Zclyh3: Actually, it's probably easier. Call your credit union and by the end of the call you'll probably have an open account. One thing that I've found with my CU is that generally you can talk to a decision maker on the spot, rather than waiting for the Risk/Benefit Computer(tm) to calculate whether or not you're worth rapin...erm...extending credit.
I've closed my Chase card and taken the FICO hit thanks to their idiotic 30% hike in interest rate last spring, but in the long run I think I'll be happier.
I got the same letter a few days ago. I've always made my payments on time, but I absent-mindedly missed the deadline for two payments in the past year, so I'm wondering if maybe I'm being punished for that. I opted to pay for some elective dental work by putting it on the card, so at the moment I have a substantial balance.
I have another card that coincidentally sent me a zero-interest balance transfer offer right around the same time, so naturally I will be transferring it, and working hard over the course of the next year to pay it off.
These snakes sent me the exact same letter.
Old nominal APR (by that I mean, not a promo rate) 6.99% (Prime + whatever makes it 6.99% at the current moment)
New APR: 29.99%
I rolled my eyes, and picked up the phone to call Citi. I've played the retention game with them many a time on a couple cards of theirs...whenever you're speaking with a front line rep and mention cancelling, they send you to an "account specialist" who then pats you on the head for being a good customer and gives you something more aggreeable.
I had no sooner mentioned the letter and the word cancel and she says, "Alright sir I've processed the cancellation and it will take effect immediately". My mouth dropped. Don't get me wrong, I was going to cancel anyway if they didn't pull something up that would un-screw this mess, but I was pretty taken aback at how willing she was to just cancel the card.
I asked her about it, why I couldn't speak to someone else, and she said they don't do that for change of terms anymore. ?? okay, whatever, at least I can pay off my old balance at the old APR.
But GOD, from 6.99 to 29.99? Citi can take my card and shove it where the sun don't shine.
I just got one of these in the mail, myself - I'm so glad I read you every day. I was trying to figure out exactly which orifice to tell Citi to shove this into.
@matt314159: Yeah, they decided they meant business. When you raise a rate so high, if you give in for one word would get out, so you have to do it for all.
I don't think they want customers any more. You just don't triple prices and expect many to stick around do you?
I as well got this infamous letter. Im too dumb to make sense of the math besides the APR going from 20% to 30% on my American Airlines points card. what a great excuse to pay the thing off finally. If that card didnt have one of my longer credit histories on my still young history Id tell them where to put the card.
Where does it make sense to raise the APR in this economy? everyone pays off the bill cause its to expensive otherwise..and the company that makes profit off having a bill has less now. just like taxes you dumb folks
15 years 25K limit always carried around a 3k balance at 7% interest never missed a payment and was never late in 15 years I had the card. Got the letter on Sat. called and told them they are out of their mind and no way in hell I'm paying 29 % close my card thanks for nothing. She closed it, I keep the balance at 7% while paying the balance off and when it's paid off were done doing business together. I don't care what ding I get on my credit report I have good credit and no way in hell I'm paying anyone interest over 7%. Maybe if enough people call and close their accounts they would get the bigger picture or then again maybe that's what they want. Either way we have broken up never to get back together.
I think this is exactly what they want, to fire a bunch of their customers. No customer in his right mind, unless he's desperate, would keep a card with such egregious terms. I was furious, still am to some extent. I've only had the card for four years, but I've never missed a payment in that amount of time and that deserves a slap across the face?
That's F-ed. Though what do you expect from a company run by an Indian guy. Okay, I can only say that because I'm half Indian so it's technically not racist. Hey...maybe that's why Citi hasn't bothered me or rate-jacked me. Plus 1 Mr. Pandit...for now.
I thinks this is a stunt to charge extra then force people to go through a convoluted call tree in order to be refunded when they really won't give you back the 10% and make people so frustrated that they will just take the hit and get really angry and write really long run on sentences that give people headaches when they read it which will lead to relationship issues and the cat being kicked out of frustration.
:)