Citibank announces an interest rate hike to 29.99 percent, effective November 30. Customers are now receiving notices from banks regarding this increase, which is intended to continuously provide consumers with access to credit.
Credit card holder, Rodney Fielding, says he was appalled with this news. He says he would have understood and accepted the rate increase if he missed several payments. However, Fielding claims he is a good payer who never missed a payment, and the increase makes no sense to him.
Citibank says all card holders are receiving the same notice as a response to the credit card Reform Legislation. It has also cancelled several gas company MasterCard accounts and sent letters to a limited number of Shell, Phillips, Citgo, and ExxonMobil card holders.
Bank of America also informed its customers last week that it will start to charge annual fees from $29 to $99, beginning as early as December 1.
Card holders like Alfred Parsons, are getting fed up. He is now thinking of withdrawing all of his money.
According to Scott Talbott, vice president of Government Affairs for financial Services Roundtable, these financial institutions are taking a huge chunk of losses in lending and are trying to decrease risks from borrowers.
He reveals that rate hikes, credit line decreases, and tightening of credit standards are all implemented as a response to the increased risk in the market and the US economy as a whole.
This update on the increase came in as the National Retail Federation is reporting its holiday sales forecast. These days, getting consumers back to stores is crucial to the industry's recovery. However, trade group worries that this rate increases could hinder that.
Ellen Davis, vice president of the trade group said there is never a right time for card holders to see increases on card rates, but just before the holidays is about as bad as it gets.
At present, Citibank has 92 million card customers, but it lost $8 billion in loan defaults last quarter. Fielding says maybe the company will lose good-paying customers too. He has been with them for five years, and he does not want to lose them, but he has to if high rates would interfere with his finances. He still worries about the impact on his credit rating, should he decide to give up his card.
Closing accounts may lead to a lower credit utilization ration, which is the difference between the outstanding debt and the consumers' credit limit.
Consumers are advised to talk to their credit card issuer to check if they can negotiate a lower interest rate. If this will not work, they can start doing their research and find better deals with other providers.