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A major credit-card company eases some stiff consumer penalties
Thursday March 1, 9:44 pm ET
By Andrea Coombes
Citi eases some stiff rules and penalties on consumer credit cards

SAN FRANCISCO (MarketWatch) -- It's not often that consumers welcome the news they get from credit card companies, but Citi, the financial services company, said Thursday it is easing some rules on its consumer credit-card accounts.

Citi (NYSE:C - News) is ending "universal default" on all Citi-branded consumer credit cards, effective immediately, the company said. Universal default, a common practice among credit-card issuers, is when the company increases a consumers' interest rate when that consumer is late paying other creditors' bills.

Also, Citi said it would eliminate its "any time for any reason" rate increases, which allow the company to raise interest rates and change terms at any time and for any reason another common practice among card issuers. Citi said the policy is effective immediately for new customers and will go into effect for current customers by April.

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Thanks to the changes, interest rates and fees will increase only if the customer pays Citi late, exceeds the credit limit or pays with a check that bounces; and, if the card's interest rate is tied to the prime rate, the rate will change to parallel changes in the prime rate, said Samuel Wang, a spokesman with Citigroup. Also, under the new policy, the card's terms may change when the card expires, generally after two years, he said.

Citi said the changes were part of its ongoing efforts to "put our customers first."

"We're committed to building better relationships with our customers, and at the end of the day that's mutually beneficial," Wang said.

Consumer advocates said the changes were good news, but were prompted by Congress' attention on credit-card company practices.

"We applaud Citi. We think it's a positive move," said Travis Plunkett, legislative director with the Consumer Federation of America.

Congress takes note
Citi is not alone in making consumer-friendly changes, Plunkett said. "About three weeks ago, Chase announced they would no longer (engage in) the often-criticized practice known as double-cycle billing," he said, where a company applies interest charges on a two-month period, rather than a one-month period. Under that practice, "people receive interest charges on the balances they've already paid off," Plunkett said.
Citi's and Chase's announced changes "are not occurring in a vacuum," Plunkett said. Congressional hearings addressing credit-card industry practices "signal that Congress is getting serious about abuses in the credit card industry," he said.

"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," Plunkett said.

The Consumer Federation would like to see Congress take action.

"We are happy to see the credit-card industry start to clean up its act, but I don't think we're going to get a permanent solution to this overall problem until Congress puts some basic rules of fairness on the books."

Citi's announced change "is a very positive move," Plunkett said. "It's important that consumers have options that they can turn to for what I'll call cleaner cards, but it seems unlikely that this will change the way that consumers will shop for cards," Plunkett said, noting that most consumers choose credit cards based on up-front fees and interest rates, while Citi's new terms affect late payments and other terms that don't necessarily occur regularly.

If other companies don't follow Citi's lead and Congress doesn't act, Plunkett noted, consumers will still face universal default and other onerous policies in the marketplace.