Here’s a trick Citibank pulled before the Credit Card Accountability and Responsibility Act took effect last month in an effort to circumvent the new regulations.
Two of the act’s most important provisions require credit cards to:
- Provide 45 days notice before raising rates, and the new higher rate can’t be imposed on existing balances, just new purchases.
- Wait until customers are 60 days behind on their payments before imposing a higher penalty rate on their accounts.
But Citi mailed a change of terms letter to some customers before the act took effect telling them that they qualified for a special discount rate of 8.99% unless they pay late.
Miss a deadline by just a day or two and the rate soars to a stratospheric 29.99%.
Citi can do that because rates that are clearly labeled as part of a special or introductory deal aren’t covered by the new rules.
The 29.99% can also be imposed on existing balances because it was the full, non-discounted rate when the Credit CARD Act took effect.
Bottom line: These terms allow Citi to slap delinquent cardholders with penalty rates almost exactly as it did in the pre-Credit CARD Act world.
“The difference between people who could pay late by a day or an hour and people who are seriously delinquent is a huge difference,” says Heather McGhee, director of Demos, a non-partisan public policy research and advocacy organization.
“It’s so easy for working families to pay a bill late by a day or even by an hour. This practice is targeting those accidental late payers.”
If you have a Citi card, take a look at your most recent statement or any change of terms agreement the bank may have sent you earlier this year.
If you have a discount rate, you need to know that you’re still subject to abruptly higher charges despite the new federal regulations.