November 23rd, 2009
Citi’s Offer: Ditch Interest Rate Hike If You Spend More
Citibank is offering a “catch-22” for credit cardholders: dodge the bank’s impending interest rate hikes if you meet a monthly spending requirement. Citi customers who meet the spending minimum, and pay on time, qualify for a rebate on their total interest rate charges for that month. Citi reports that the rebates will be based on interest charges for the entire balance and not just on monthly charges.
Full details on what the qualifying spending minimum is remains vague, as Citi will only comment that both the spending requirement for the rebate and the impending interest rate hike varies according to the cardholder’s credit history. Citi cardholders are already receiving notices about both changes they will be subjected to; MyBankTracker reports that one Citibank cardholder notice’s stated a $1,000 spending minimum a month to qualify for the rebate.
These card changes are fueled by a perceived need from issuers to create more revenue-generating strategies before the reforms take place next February. This seems like a predatory practice, encouraging cardholders to spend more through the promise of rebates, but it can also be seen as one of the more helpful offers to come our way since the relentless wave of credit card term changes from issuers. Of all the issuers who have been upping interest rates—some as high as 30%– Citi so far is the only issuer to offer some concessions; however, it’s debatable about how much cardholders will really benefit in the long-run.
This “compromise,” between the industry problem of trying to remain profitable despite reforms and the consumer problem of added financial burden due to changing credit card terms, is extremely problematic. This offer will most benefit cardholders who own a Citi credit card and charge most of their transactions on it already; they will likely not need to change their spending habits drastically in order to qualify for the rebate. However, cardholders who have a balance on their Citi card they are trying to pay down are stuck between a rock and a hard place: either they spend more in order to qualify for the rebate which will add to their existing debt, or they are subject to the interest rate hike which still adds to their existing debt. For these customers, the best thing to do might just be to pay off the debt as quickly as possible to refrain from paying interest charges for too long.
Citi is also offering another “opt out” option, in which cardholders can pay down their current balance with current interest rates until the end of their current membership year or the expiration date on their card, whichever is later. However, if you choose this and your card is closed afterwards, it will impact your credit score (read more about impact on your credit score when closing your credit card).
Overall, the real winner here is Citi, who will profit from cardholders regardless—whether through increased spending or interest charges. “Customers who do more business with us will have the most opportunity to reduce their rates,” the bank stated. Is this really the best way for the credit card industry and consumers to meet eye to eye—to spend more in order to avoid the threat of being charged more?
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
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Citi is my #1 card for their generous rewards and credit limit but they are 1 out of 4
closed my citi card due to rate hikes and high pt cost of redeeming rewards, 3500pts for $25. citi is going to lose many of their good customers and we won’t be back, I think 20%+ int/5% bal transfer/cash advances is an insult to those with excellent credit, I have better rewards on my other cards, anyways