Reduced credit limits; Big Deal

After Citibank lowered my credit limit, I got to thinking. Citibank claims they mailed (the undated) notification on November 5th, but I received it on Nov. 26th, the day before Thanksgiving. Citibank e-mails me balance transfer offers, but they didn't e-mail me about changing my account terms. If I were a different consumer, this could have been disastrous. I had 3 weeks to unknowingly exceed my new, lower credit limit - racking up over-the-limit fees and falling into Universal Default. Most of my mail arrives within 3 days - why Citibank's notice took 21 days is sheer mystery. But that 21 day delay in notification effectively made the credit limit reduction retroactive - I found out about it on Nov. 26th, but it took effect 3 weeks before I knew anything about it.

Consider a consumer carrying a moderate $2,000 balance out of a $6,000 credit limit. If Citibank lowered his limit to $4,000 on November 5th and he bought 4 plane tickets on November 10th for a Thanksgiving trip, he could easily max out his card long before coming home to notification of the credit line decrease. Buying $2,000 plane tickets at 10% interest - suddenly becomes a major offense. By exceeding the new and unknown lower credit limit, he gets hit with $30 fees every month he's over his new credit line, and 29% interest rates eating up $100 a month before he can pay the balance down.

For some consumers, especially ones carrying a lot more than a $2,000 balance, going into Universal Default can push them over the edge, from struggling-but-making-it to "f- it, why bother paying my credit card when I cannot possibly get ahead of it at 30% interest?" A credit card holder who didn't buy a McMansion, who is trying to do the right thing, trying to pay down debt and build up savings and work up to a better spot in life, reads every day about homebuyers and bankers and brokers and insurance companies getting bailed out. No bailout for the credit card debtor, but she keeps making her payments, trying to whittle it down, and then WHOMP! Out of nowhere, the bank changes the rules and she's suddenly over her head without doing a damned thing to fall into the abyss. Why should she keep making payments anymore? Her share of the financial bailout - counting all the cash the Fed is pumping into liquidity along with the direct bailouts of financial institutions - is over $20k++ and suddenly the bank needs to cheat her out of an extra $100 a month by telling her extra slowly that her credit line has been cut right before the holidays.

Maybe our imaginary consumers shouldn't carry a balance at all. It would be good for our economy, in the long run, if people consumed a little less than they produce. We should all carry a balance - in our savings accounts. But we don't, and the path from here to that economic utopia will be painful for everyone. And if the banks' greed and stupidity pushes people into Universal Default and that causes some of them to go into genuine, not-making-payments default, well, gosh darn it, those bastards will be back for more bailout money next year. I don't object to lowering credit limits, and I only object to tightening credit in the sense that "hey, that's not why the government is giving you bailout money!" I object to the sleazy way the banks are doing this, trying to wrest a couple more nickels out of people through downright unethical behavior.

The government is trying to loosen credit and persuade consumers to go out and stimulate the economy. The banks receiving bailout money are doing the exact opposite - they're restricting credit availability to everyone, even great credit risks, and then they're whomping innocent consumers with changes that can push them over the edge. Are the credit card companies trying to push default rates up, to justify yet another round of bailout payments? What other justification could they possibly have for virtually retroactive account changes?

Citibank: The Grinch Who Stole my Credit Limit

I'm in a real-estate-meltdown zip code. I've read about credit card companies terminating and reducing credit lines for folks in declining industries, folks who charge at rent-to-own stores, and even folks in the wrong zip code. But I continue to receive credit card solicitations. I thought my over-800 credit score made me immune to credit cutbacks. I was wrong.



Wednesday's mail contained a note from Citibank (and another pre-approved Gold card from American Express). I almost shredded Wednesday's letter, unread, since it looked just like all the balance transfer offers they send me every couple of months. I've been a Citibank customer for more than 15 years, and I've never missed a payment. I don't carry any debt outside of a small mortgage, but I do use my rewards cards for everything from purchases to monthly utility bills. I get hundreds of dollars in rewards checks this way.



My Citibank card doesn't offer rewards, and the interest rate is several points higher than my other cards (except AmEx). So I rarely use it. They do offer have a Virtual account number tool that lets me create one-time-use virtual credit cards for online transactions, so I do use my Citibank card a couple times a month. For a while there, they gave me a rebate on hardware store purchases, and I used the card a LOT more until the offer expired.



Now Citibank has cut my credit line - because I don't use their card enough. I know I'm not a super-profitable customer, since I don't carry a balance at 10%. But then, too, they'll never have to write off a penny on me. A couple percent in (ATM) transaction fees makes my bank plenty happy - wouldn't Citibank benefit from transaction fees on low-risk transactions, too?



If you ran a credit card company, wouldn't you try to keep long-term, never-missed-a-payment, no-debt customers happy? If they weren't using my card anywhere near as much as they used other cards, I would try to make my card more valuable to them. But Citibank decided to punish me for not charging a lot to their card nor carrying a balance with them. So I closed my account.



Perhaps I overreacted, since the reduction was minimal. They still left me with enough credit to buy a small car, but 1) I'm tired of the junk mail asking me to transfer my (non-existent) loans to my Citibank card, every flipping month; 2) I'm still a little burned on my Citibank stock losses (brilliant recommendation from Morgan Stanley, eh?); and 3) that's just bad business and I don't like to do business with companies that don't get it. So that's one less stack of unsolicited balance transfer checks to shred every month. Yippee!