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In
this Nov. 17, 2008 file photo, the logo of Citibank is seen
above a banking machine at a branch in Frankfurt, central
Germany
. Citibank is requiring customers to spend hundreds of dollars
each month with their credit cards or face steeper interest
rates.
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NEW YORK - For Citibank credit card
holders, there is one way to escape the bank's rate hikes currently
under way: Meet a monthly spending requirement.
Those who meet the spending minimum —
in some cases $750 a month — will be able to get a rebate on their
total interest charges for that month. The rebate could cover some or
all of the interest rate hike. Customers also need to make payments on
time to qualify for the rebate.
Without giving specifics, Citi said the
monthly spending requirements and interest rate hikes will vary
depending on the cardholder's credit history.
About half of its customers will be able
to erase 50 percent to 100 percent of their rate increases through the
rebates. Citi said its rebates will be based on interest charges for an
entire balance, not just monthly charges.
With 92 million credit cards in
circulation last year, Citi was the second largest card issuer in the
country, according to CreditCards.com. Chase was the largest with 119.4
million cards, and Bank of America was third with 80.2 million cards.
The change by Citi comes as the industry
rushes to adjust to sweeping reforms to start in February that will
limit when and how much card issuers can hike interest rates. In a
statement, Citi said the actions were necessary given elevated losses
from souring loans and "regulatory changes that eliminate repricing
for that risk."
The bank also noted that "customers
who do more business with us will have the most opportunity to reduce
their rates." Of course, consumers could need to spend more than
they otherwise would to qualify.
That's the case for Lindsey Pappas, a
25-year-old public relations professional in San Francisco. She received
a letter from Citi Wednesday that her interest rate was being hiked to
19.99 percent, up from 14.99 percent.
If she spends $750 a month, however, she
can get a refund for part of the higher interest rate charges.
The problem is that Pappas is trying to
pay off a $5,000 balance on the card, so she tries not to charge any
money on it.
"I'm just going to have to deal with
the higher interest rate. Spending that much would be
irresponsible," she said.
Her best option now is trying to pay off
the balance quickly, she said.
Citi's move is just the latest in a
series of rate hikes, lowered limits and other term changes credit card
customers have seen in the past year. Customers who never carry a
balance, and therefore don't incur financing charges, have not been
spared.
Last month, for example, Bank of America
said it used "risk and profitability" in selecting accounts on
which to test annual fees of between $29 and $99.
Citi's move, meanwhile, is likely
intended to generate greater interchange fees, which banks reap from
merchants when customers use credit or debit cards, said Ben Woolsey,
director of consumer research for CreditCards.com. If customers spend
more to qualify for lower rates, Citi will benefit from the additional
transactions.
Most customers who choose to refuse
Citi's new terms will be allowed to continue under their old interest
rates until their cards expire. Other accounts will be deactivated.
While Citi is raising interest rates
across much of its credit card portfolio, select customers will be
offered lower rates. To qualify, however, they will need to transfer a
balance from another credit card onto their Citi cards.
Samuel Wang, a Citi spokesman, declined
to say the credit card terms potential new customers would be offered.
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