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.