NEW YORK — At a time when a newly Democrat-controlled Congress seems poised to take on a searching and critical review of major card issuers' card account management practices, Citigroup, a leader in the industry, has announced that it is abandoning one of the most controversial procedures.
So-called "universal default" is the practice of increasing interest rates for individual cardholders if they pay late on bills from other creditors. Citi said that it had allowed cardholders in the past to "opt out" of this procedure, but now it is eliminating the practice altogether.
A company press release also said that it would abandon the practice of changing the rates and fees on card accounts "at any time and for any reason." Now the company will change the rate on general cards with up to date payments only when the card renews, Citi said. Cards whose rates are tied to the prime interest rate will continue to see their card rates rise and fall with the prime, the company added.
"We believe that making changes to what have been–until now–basic credit card practices is proof of our ongoing commitment to put our customers first," Vik Atal, chairman and CEO, Citi Cards, said.
Cynics saw the threat of possible new regulatory attention and a changing interest rate market for the changes.
On the regulatory front, the Senate Banking Committee is now chaired by Connecticut Democrat Chris Dodd, a legislator with a long history of interest in card practices. He already held a hearing on the topic on Jan. 25 of this year and warned the industry to reform the card procedures or face additional regulation. Other investigations and legislation is expected from Senator Carl Levin (D-Mich.).
Response from legislators to the Citi move has generally been positive.
Representative Spencer Bachus (R-Ala.), ranking member of the House Financial Services Committee, weighed in with his approval of Citibank's announcement.
"I commend Citigroup for taking this significant step in improving its practices and for leading the industry in the right direction in being fair and transparent with its customers," Bachus said. "I have been concerned about these issues for some time now and I am pleased to see companies taking these concerns seriously and making proactive changes."
Barney Frank, chairman of House Financial Services Committee also supported the move.
"Eliminating universal default and unilateral changes in terms and conditions are important steps toward reforming industry pricing policies, and I appreciate Citigroup's newly announced revisions in credit card practices. I hope other issuers will follow Citigroup to end practices that can be unfair and costly to consumers," Frank said. –[email protected]
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