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Citibank, an industry leader in the credit card business, recently announced that it would be calling a halt to a couple of financial practices which have become quite controversial recently.
To begin with, Citibank has chosen to eliminate the "universal default" clause in its cardholder agreements. This provision allowed Citibank to raise the interest rate on your card if you were late on an account with another bank. The provision could kick in even if you had made payments to your Citibank account on time. The majority of other credit card issuers, however, will continue to have such a provision in their agreements.
Citibank has also decided to scrap a provision allowing the company to change a credit card interest rate for "any time or any reason." This clause was written in response to fluctuations in market conditions, but was perceived by consumer advocates as being unfair to consumers. As a result of such provisions, card holders have routinely found their to-die-for interest rates on their credit cards disappearing when the Federal Reserve made a change in interest rates.
However, Citibank retains the right to raise your interest rate if you are late with your payment, if you exceed your limit, or if the check you pay with is marked "insufficient funds." The changes in cardholder agreements took effective this month.
Industry observers say the changes could represent a public relations coup for Citibank. This is because the bank may now be considered more consumer-oriented, leading to new business. The decision also sets them apart from other financial institutions, casting Citibank in the role of industry risk-taker.
Still, it may be too soon to tell whether such moves will enhance Citibank's profitability in the future. Interest rates are the bread-and-butter of the credit card industry and, if card issuers refrain from raising rates, they could compromise their profit margin in the long run.
More information: Citbank home page
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