Wednesday, March 10, 2010

Why? Because They Can

David Lazarus, business columnist for the Los Angeles Times, pointed out a rather interesting coincidence in his latest offering:

Vikram Pandit, chief executive of Citigroup Inc., thanked taxpayers the other day for coming to his company's rescue with $45 billion in bailout cash.

"Citi owes a large debt of gratitude to American taxpayers," he told lawmakers in Washington. The bailout money, Pandit said, "built a bridge over the crisis to a sound footing on the other side."

And how is Citi expressing its gratitude for that act of taxpayer generosity?

It's slapping a $60 annual fee on many credit cards that previously had no fees and telling customers that if they don't like it, tough patooties. They can pay off any outstanding balance and take their business elsewhere.

Man, if that's Citi when it's grateful, I'd hate to see the company when it's cheesed.

Recent changes in the rules for banks offering credit cards have the banksters scrambling to find ways to keep the profits obscenely high, and this move by Citi is obviously one of the ways chosen. The other credit card issuers will no doubt fall in line with the move (if they haven't already). Is it legal? Apparently so. All that is required is that the issuers advise their customers of the impending change in understandable English (which is, by the way, an improvement).

Now, my first response to reading the lines quoted above was that Citi's credit card holders should just up the card and return it to Citi with a note to place said mutilated card just north of its corporate anus. Ah, but here's the rub:

Linda Sherry, a spokeswoman for the advocacy group Consumer Action, said canceling an older card that reflects long-term creditworthiness can indeed have an impact on your credit score.

"You might see your FICO score go down by as much as 100 points," she said.

Consumers are now between a rock and a hard place, especially if they have been diligent in making their payments in order to have the kind of FICO score which would make obtaining a home mortgage possible. A drop in the FICO score caused by a cancelled account may mean a huge jump in the interest rate for that mortgage, or even an outright rejection. A lowered credit rating also affects the interest on loans for lesser purchases (a car, e.g.) and on the interest charged by other credit card issuers, so Citi has a double whammy working.

That said, however, Ms. Sherry still thinks that if people are not currently shopping for a new home or a new car, working to re-establish that creditworthiness over the next year or so after canceling the Citi card just might send the right kind of message.

Maybe the loss of a 10,000 credit card holders in California would grab Mr. Pandit's attention. Losing 100,000 customers nationwide most certainly would.



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