Citigroup has indicated it will add annual fees to its Credit Cards a full week ahead of the formal implementation of the credit card Accountability Responsibility and Disclosure (CARD) Act of 2009.
Cardholders of Citigroup have been receiving mailers informing them of a $60 annual fee that is linked to their account beginning April 1. As such purchases of $2,400 during the year will lead to the $60 fee charged to the account.
Among all issuers in the U.S., only 20 percent charges annual fees. Citigroup's main competitors include Visa, MasterCard and Capital One.
Citigroup had tested adding the annual fee to some subscribers last year, ranging from $30-$90 unless the cardholder spent at least $2,400. It proved to be successful, with more borrowers making purchases using their cards.
Now, Citigroup is sending these mailers to more people with the hope of attaining high revenues amid the challenges posed by the CARD Act. According to them, these new fees have been imposed to offer better quality of service despite the rising cost of doing business. As it is, charging annual rates is one way to increase revenue.
This move could be a sign of other drastic measures to stopgap the effects of weaker consumer spending, higher default rates, and the landmark CARD Act, which puts a cap on interest rate increases.
For those cardholders who use credit cards for $200 purchases each month, the annual fee would not be a factor. But for those who only use credit cards sparingly, will now have to pay for that luxury.
But borrowers who have good credit standing or payment history can negotiate with issuers to waive these annual fees. It's worth the try since such borrowers can spread out their spending within the year to still reach the $2,400 requirement while paying off the monthly balances.
And, there's always the choice to opt out of the card and close the account.
For a great number of borrowers already burdened with the economic turmoil, that is the most logical choice. As it is, borrowers have the right to opt out of the rate increase by paying off the balance at the current rates up to five years by the deadline indicated in the notice.
Meanwhile, Citigroup has discontinued a large number of MasterCard accounts, particularly the gas service partner branded cards such as Shell and ExxonMobil as it continues its realignment and repositioning amid the challenging market environment.
It also ended its Home Depot card last year with rewards redeemable only up to the end of February 2010.