Consumer Law In the News

Citigroup Sees the Light on Anti-Consumer Credit Card Policies

Citigroup announced Friday that it was abandoning two practices widely felt to be the most antagonistic towards consumer card holders - the practice of universal default and its “anytime, any reason” rate increase policies.

Universal default is a particularly wicked little game the credit card companies began playing some time ago. Default, of course, is generally declared for nonpayment, but it can also be interpreted, depending on your cardholder agreement, as late payments. Universal default is even sneakier - it looks at your payment practices and habits, not just on the card at issue, but also on other cards you might hold.

Example: you hold a Capital One MasterCard and a Citigroup Visa. Let’s say you were late on the Capital One payment in February - but you made the Citigroup payment on time. Citigroup’s universal default policy allowed Citigroup to raise its interest rates on the Citigroup card for the Capital One late payment! Devious! Thank goodness that’s over - well, at least with one card issuer.

The other policy that has been eliminated (immediately for new customers, as of April for current cardholders) is the right to raise interest rates and change terms at any time for any reason. This is another common practice among many card issuers. The first sign many consumers have of this practice is that ubiquitous “Changes to Your Agreement” flyer you might get in the mail every so often.  If you don’t read those brochures carefully, you might be surprised at your next billing statement which shows an interest rate of 29% where it used to say 21%.

Congratulations to Citigroup for doing the right thing. But … maybe it’s the lawyer in me, and maybe I’m just too darned suspicious by nature… why now? This came out of the blue, so to speak, starting about a month ago with some other changes by other companies (mentioned in the article linked to above). The answer to the “why now?” question is actually pretty simple: Democratic Control. Travis Plunkett with the Consumer Federation of America nails it when he says “Credit card issuers are announcing unilateral changes in their practices that have been criticized because they are now fearful that Congress will legislate in this area and they don’t want that to happen.”

Good luck with that. Given the Congressional hearings held recently, and the heavy activity on the Hill by groups such as NACBA (of which I am a proud member), I think it’s a pretty safe bet that we haven’t heard the last of political interest in this industry.

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Update: Harvard Law Professor Elizabeth Warren has some commentary that’s a “must-read” here at TPMCafe.

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