November 20, 2009
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News: CitiGroup Supports Interest Rate Cap
CitiGroup, the credit card company that has received a great deal of criticism over the past few months for unfair practices, says it would support an interest rate cap. In a meeting with Globe reporters and editors, Vikram Pandit, Citigroup's Chief Executive Officer, said the company supports an interest rate cap on new accounts only. The company's support of such a measure does not come without conditions. Pandit indicated that such a cap would need to be adopted across the credit card industry and pertain to new accounts only. Ironically, Citi has been the center of controversy as the company has closed accounts without warning and increased interest rates on a select group of accounts to nearly 30 percent.
Citigroup has not been the only credit card company to raise interest rates to near loan sharking percentages; nearly every major lender in the U.S. has double and tripled rates ahead the new legislation. Despite the efforts of consumer advocates and lawmakers to get legislation passed that would cap interest rates at 15 percent; U.S. leaders have not come to the rescue of Americans. According to Pandit, three years ago Citi set credit card interest rates at 10 percent looking to be the industry leader in providing fair account rates. The strategy backfired when many consumers transferred balances from higher rate accounts and then defaulted. Citi paid the price with higher default rates. However, what's unfortunate for those Citi customers who did maintain accounts in good standing, interest rate increases have really placed the loss on their shoulders.
During the meeting, Pandit laid out Citigroup's plan to improve its financial position and has seen encouraging results. The credit card giant appears to have “turned the corner”. Citigroup turned over approximately 34 percent of the company to the U.S. Government when they accepted $45 million in taxpayers' money to assist it in riding out the recession. The company has not yet repaid the debt, but looks to do so soon.