LAST year Citigroup made a promise to millions of people who flex its credit cards: “A deal is a deal.” The slogan was used to trumpet an announcement that the financial giant would no longer reserve the right to raise interest rates on cards at any time, for any reason.
But Citigroup’s deal is only a deal until it isn’t. The company is quietly reconsidering its pledge as it confronts a host of financial troubles, according to Citigroup executives. A decision could come this week. Samuel Wang, a spokesman for Citigroup, declined to comment.
Several Citigroup executives emphasized the “deal is a deal” slogan before members of Congress and to consumer groups. The pledge helped Citigroup fend off greater regulation of the card industry and distinguished the company as an industry leader.
As part of the promise, Citigroup said it would abandon a practice known as “universal default,” in which card issuers raise a holder’s rate when that person is late paying any bill, even one unrelated to the credit card account. Citigroup also said it would no longer reserve the right to raise rates at any time, although it retained the right to raise them every two years, when cards are renewed. The pledge was never intended to be good for the life of an account.
Citigroup said the only reason it would raise rates or fees would be if customers paid late, exceeded credit limits or bounced checks when paying. The bank received public kudos from its harshest critics and lawmakers.
Senators Christopher J. Dodd and Barney Frank, both Democrats, applauded Citigroup. Senator Norm Coleman, a Republican, said Citigroup “deserves praise for its announcement . . . that, in its words, ‘A deal is a deal.’ ”
Longtime rivals like Chase Card Services followed Citigroup in announcing they would abandon universal default. No banks, however, joined it in eliminating the “any time, for any reason” clause.
But now Citigroup, with the entire financial industry, is struggling to shore up its finances. The company has taken more than $40 billion in write-offs during the last year, largely because of investments linked to mortgages. The credit card business, meantime, is starting to stumble because of the slack economy. Americans are falling behind on card bills in growing numbers. And after years of staving off federal banking regulators and Congress, credit card lenders are facing tough new rules that are intended to protect consumers but would also limit the money they could make from customers deemed bigger risks.
Last year’s pledge put Citigroup in a bind. The company missed out on revenue that it would have gained from raising rates for certain customers. And new rules recently proposed by the Federal Reserve and the Office of Thrift Supervision would further limit the bank’s flexibility to increase rates of riskier customers. (See Citi's CFO talk about the rising cost of credit in the video).
Traditionally, credit card lenders could increase the interest rate on both an existing balance as well as on any new debt. The proposed rules would limit rate increases to customers late by 30 or more days, and the new rates would apply prospectively to newly accumulated debts.
In any case, the “Deal Is a Deal” policy did not give Citigroup the edge it hoped for. Most customers did not recognize the benefit, in part because of the difficulty deciphering the fine print among offers from different banks.
“We hoped and expected that these two points of differentiation would lead customers to vote with their feet,” John P. Carey, the chief administrative officer for Citigroup’s credit card unit, told a Congressional panel in April. “We have been disappointed with the results we have seen so far.”
Jenny Anderson contributed reporting.