Citigroup is whining that new regulations eliminate pricing for risk. So what does it do? Jack up rates is the answer. To lower interest rates, Citi customers must spend more.

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 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.

Disingenuous Whining

Notice how Citigroup is whining they cannot price for risk.

So what do they do but lower rates for those clients taking on more risk by charging more. Common sense would say that the lower the balance the less the risk.

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.

“Spending that much would be irresponsible” said Lindsey Pappas. Indeed it would be. The irony is Citigroup complains about “regulatory changes that eliminate repricing for that risk” then voluntarily turns around and encourages customers to take on more risk while pricing less for it.

Such policies will drive away less risky clients while keeping the poor ones.

Is it any wonder Citigroup is in trouble?

Mike “Mish” Shedlock
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