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Banks Screaming to be Regulated as Credit Card Panic Beckons

Personal_Finance / Credit Crisis 2009 Oct 26, 2009 - 04:29 AM GMT

By: Mike_Shedlock


Best Financial Markets Analysis ArticleEmails are pouring in over Citigroup's "Hail Mary Pass": How To Know Citigroup Is In Serious Trouble.

Here is one from "HG" who writes

Hey Mish,

We have a 7 figure net worth, no mortgage debt (we do own our own home), pay credit debt in full each month, and have credit scores of 726 and 702 respectively. We are 56 and 53 years old.

Just got the Citi 29.99 credit card rate increase notice. It's not limited to those who carry a balance like the folks who carry 25k in debt.

Needless to say, I'm cutting it up on principle, but not closing it so that my credit limits don't go down.

Enjoy your posts and look forward to reading them going forward.


Matters of Principle

Want to take it out on Citigroup? If so, then do what "HG" did.

If you have a Citibank credit card just stop using the Citicard to deny Citigroup every cent you can.

It is high time for people to stop buying junk they do not need with money they do not have. Citi's actions help.

Citibank Sends Out 2 Million Letters

Here is an Email from "MJ" who writes

Hi Mish,

I got a Citibank letter last week raising my interest rate to 29.99% from 7.99%. I have a 780 credit score and pay my account off every month. My limit was $18,200. I never made a late payment to Citibank (or anyone else).

When I called them to either maintain my current terms or opt-out, the rep told me she had been getting nothing but complaint calls all day. She said Citibank had sent out 2 million such letters. I was given one choice: accept the new terms or have my account canceled upon its expiration of 12/31/09. I told them to cancel the account.

The “hail Mary” you describe is even larger than you imagined.


I am hearing many stories about ridiculous rates but this one takes the cake.

First Premier Banks Offers Card With 79.9 Percent Rate

Please consider No, You're Reading That Right

Gordon Hageman couldn’t believe the credit card offer he got in the mail.

"My first thought, it was a mistake," Hageman said.

The wine distributor called the number on the offer, gave them the offer code and verified his information. Sure enough, it was right: the pre-approved credit card came with a 79.9 percent APR.

Yes, 79.9 percent.

The offer is for a Premier card from First Premier Bank, which is based in South Dakota. On its Web site, First Premier says it is the country's 10th largest issuer of Visa and MasterCard credit cards. The site also says it "focuses on individuals who have less than perfect credit but are actually still creditworthy."

According to information on the South Dakota Legislative Web site, there is "no maximum or usury restriction." In other words, the individual bank can set its own interest rate limits.

Several calls made to First Premier for a comment were not returned.

Banks Scream To Be Regulated

If ever there were screams of "Please Regulate Me" these actions by First Premier and Citigroup must be at the top of the list.

Stories like these are piling in from everywhere all over the internet. Yet, it is the Citigroup stories that seem to be jacked up more frequently without reason.

I just checked my United Plus Chase Credit Card and it is 13.15%. I don't carry a balance, except by accident (a bill comes in while on extended vacation). I think 13.15% is high.

29.99% across the board actions is absurd. It is also begging Congress for rate caps.

Some have Emailed me telling me this is nothing but greed. Others said this is nothing but preemptive action by banks to raise rates before new credit card protection laws go into effect.

I am sure there is a lot preemptive action happening. However, Citi's mass sending of 2 million letters, Citi's canceling of Gas-Linked cards and Citi's jacking of rates for virtually no reason on some accounts suggests other problems.

Email From A Collections Specialist

Inquiring minds will wish to consider the following email from "MM" who works in the financial industry. "MM" has a collections background. This Email is also in regards to Citigroup's "Hail Mary Pass": How To Know Citigroup Is In Serious Trouble.

"MM" writes:

Hello Mish

I wanted to clarify Karl Denninger's comments regarding Citigroup's 10% defaults on their credit cards.

I work in the financial industry, and have a heavy collections background. 'Defaults' is a loosely used term. For example, when my company says it has x% defaults, it is in reference to the number of loans. Karl seems to be assuming 10% is measured against fees, or what other people call revenue. This is not an accurate way of measuring true losses.

Here is a practical example to illustrate my point. At my company, if we give out 3 $100 loans and charge $10 per loan, we generate $30 in fees or revenue; However, we still have to get the $300 back we lent.

If one of those loans defaults, that is a 33% default rate, but the practical impact to revenue is a loss of $270.

So, while the default rate is 33%; the loss is $270. Karl is assuming the 10% of defaults is measured against revenue. It could just as easily be calculated against the principal. You have to check their annual report and go through their math, because default is not universally calculated the same way.

Thus, that 10% default could be exponentially much larger than Karl is characterizing. In fact, I would be willing to bet it is, because I have a friend who worked in the credit card industry for 15 years, and he was telling me his company uses the term default the same way we do.


Credit Card Panic

The actions by Citigroup smack of panic. That panic is likely to backfire.

Those who have other cards can simply stop using their Citicard as "HG" did. Even those without other cards may simply tell Citigroup to go to hell by stop using the card.

Those in real trouble probably do not care and have no intent to pay anyway.

Add that all up and what you have is a scenario in which Citibank (and anyone else following the same misguided rate-jacking policy) is going to drive good business away while keeping the bad business.

How The Grinch Stole Christmas

Think these rate-jacking actions are going to spur sales at Christmas? I don't. Rising unemployment does not help one bit either.

Many people will look at those jacked-up rates and not buy. Some will not even have a choice because of slashed limits and canceled cards.

This Christmas is setup to be worse than last because of reduced credit lines, canceled cards, and rates that amount to usury. Last year was one of the worst in retail Christmas seasons in history.

Citigroup has no idea what it is doing. It would already be history had it not been for taxpayer bailouts. Yet....

It's A Good Thing

  • To the extent that these jacked-up rates cause people to stop buying, it's a good thing.
  • To the extent that canceled cards cause people to stop buying, it's a good thing.
  • To the extent that these actions cause people tell greedy banks where to go, it's a good thing.
  • To the extent that these actions cause people just give up, stop paying ridiculous rates, and declare bankruptcy, it's a good thing.
Thank You Citi-Grinch.

The same thanks go to every other bank that jacked up rates. The odds are this will be the final incentive for many to get out of the debt slavery trap they are in. The more people that cut up their cards and tell banks to go to hell, the better off we will all be, and that's a good thing.

By Mike "Mish" Shedlock

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2009 Mike Shedlock, All Rights Reserved

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© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


John Smith
28 Oct 09, 21:54

I work customer service for Citibank. The call volume for the "Change in Term" letters have brought our computers down numerous times. Being on this side of the field you can see some of the reasoning of all of this. All the most recent CIT accounts have one thing in common, NO PROFIT. No finance charge, no late fees equals no profit. The first rule of business is to make a profit. People forget this is NOT their money. You are borrowing this money and the person doing the lending should be able to charge whatever they want for it! If you're paying off your balance every month, it shouldn't be a concern to you because you're not paying interest anyway.

30 Oct 09, 21:07


You are an idiot. Your company of which I worked for for 10 years is run by fools. Greed brought you to this point. You are bleeding deposits and are going to lose 10 billion next quarter. By the way it is our money. We bailed Citibank out to the tune of 45Billion and counting.

Mark Hankins
03 Nov 09, 15:59
Debtors' Revolt Against Bank of America, Chase, etc.

The ratejacking frenzy is sparking a "Debtors' Revolt" which was predicted by Marshall Auerback of the Roosevelt Institute in August. You can see the birth of the movement in Ann Minch's YouTube videos. It will be quite similar to Mexico's mid-'90s "El Barzon" phenomenon when it really gets rolling.

Tony Powers
20 Nov 09, 13:34
Citibank CSR Is Right

I agree with him. We accepted everything Citibank dished out at us and didn't complain to the tune of paying off our cards at the end of the month, not carrying a balance, not curbing our insatiable spending appetites. Consumers pushed them over the edge and now that they want to add on additional fees without the consumers permission, I don't see anything wrong with that. If you don't want to be assessed a fee, pay your card off and you won't get charged. Don't blame the landlord for raising your rates. If you don't like it LEAVE!!!

02 Dec 09, 06:26
I do not understand the computation example

"MM" gives the following example:

"Here is a practical example to illustrate my point. At my company, if we give out 3 $100 loans and charge $10 per loan, we generate $30 in fees or revenue; However, we still have to get the $300 back we lent.

If one of those loans defaults, that is a 33% default rate, but the practical impact to revenue is a loss of $270."

I don't quite follow the computation, probably there are some unspoken assumptions behind it.

There are 3 loans. I.e. 3 x 100

Each loan "generates" $10 ie. 3 x 10

End of the loans period after repayment $330.

Now one of the loans defaults, ie. no repayment.

End of the loans period after remaining repayment

2 x 100 + 3 x 10 = $230, After all, only one loan defaulted?

Total loss from start: 70$ Total loss from projection: $100,

or if the fee was also missed: Total loss $110 from projected.

How does "MM" arrive at $270 loss.

That would suggest that because one loan defaulted all loans defaulted, which doesn't seem to square with a 33% default rate...

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