Citi Ends Universal Default, 'Any Reason' Interest-Rate Hikes

  Citigroup Inc. in March announced it will eliminate universal default and sudden, unexplained rate increases, two controversial credit card interest-rate practices.
  Universal default occurs when an issuer raises the interest rate on a credit card based on payment and credit activities unrelated to the card account, such as when a cardholder misses a payment for a mortgage or car loan. The policy change responds to pressure from consumer groups and Congress over credit card fees, interest rates and disclosure practices (See main news story).
  Citi also is eliminating the practice of "any time for any reason" increases to interest rates and fees. The bank plans to immediately give new cardholders two-year contracts that lock in interest rates that will rise only if customers pay their credit card bills late, pay with bounced checks or exceed their credit limits.
  Citi implemented both changes immediately for new card accounts and planned to implement them by April for existing customers.
  "[Universal default] has been a standard business practice across the industry since the inception of the credit card business," Citi noted in a statement. "But we understand that customers view the right to change prices as unfair and one-sided."
  A Citi spokesperson adds, "We see elimination of these two practices as part of our commitment to lead the industry in putting our customers first with excellent service and practices that are fair and understandable."
  First Annapolis partner John Grund says that the timing is important as Citi is the first issuer to take a public stance against the practice.
  "This was a super-charged topic in the Congress' oversight of the credit card industry," he says. "While it was not widely practiced, it was widely reported and a legislative hot button. Citi is taking a stance to throttle back the flexibility inherent in cardholder terms."
  Many cardholder agreements allow for universal default, although not all practice it, Grund notes. "But the mere existence of it was cause for scrutiny," he says.
  Auriemma Consulting Group associate Megan Bramlette says the move will help set Citi apart from its competition. If the announcement garners positive consumer press coverage, other issuers might follow suit, she says.
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