Last year Citigroup pledged to abandon the customer-screwing policy of universal default, where an unrelated late payment or credit score change can trigger an interest rate increase on your Citibank card. They even used a marketing phrase to promote their promise: “a deal is a deal.” According to the New York Times, Citigroup is “quietly reconsidering its pledge” and may decide to reinstate universal default as early as this week.
As the New York Times puts it, “Citigroup’s deal is only a deal until it isn’t.”
Citigroup continues to suffer mortgage industry-related losses—$40 billion in write-offs over the last year—but there are two other reasons they’re considering reinstating universal default. First, the government has proposed new rules that would limit how Citigroup can raise rates for its risker customers, which may drive the bank to try to increase rates before they’re restricted any further:
The proposed rules would limit rate increases to customers late by 30 or more days, and the new rates would apply prospectively to newly accumulated debts.
The second reason is the “deal is a deal” didn’t work from a marketing perspective:
In any case, the “Deal Is a Deal” policy did not give Citigroup the edge it hoped for. Most customers did not recognize the benefit, in part because of the difficulty deciphering the fine print among offers from different banks.
“We hoped and expected that these two points of differentiation would lead customers to vote with their feet,” John P. Carey, the chief administrative officer for Citigroup’s credit card unit, told a Congressional panel in April. “We have been disappointed with the results we have seen so far.”
Considering one of your own marketing people told our editor that promoting the end of universal default is like “telling people you stopped beating your wife,” we wonder if the bank really promoted their “deal is a deal” pledge aggressively enough. Maybe they just knew all along that it was a temporary promise that would go away after last year’s Senate hearings on abusive credit card practices.
“Citigroup Considers Repealing a Pledge, and the Slogan With It” [New York Times]