Citigroup Rolling Out Annual Fees On Credit Cards
Citigroup (NYSE:C) has reacted to changes in credit card laws by coming up with some aggressive new ways to earn money from existing card holders.
Credit card issuers are not a passive group, and C is no exception. Credit card lenders have been warning that new credit card laws will make it tougher for them to make profits. Their answer is to come up with new ways to generate revenues. One such technique is to start charging annual fees on certain cards.
Citigroup is leading the way in charging annual fees. Industry pundits have warned that this practice could lead to people dropping their accounts, but in the event of non-profitable card holders, it could be a game of addition by subtraction.
Citigroup said that one a "small percentage" of current card holders would be hit by the fee.
"These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit," said C spokesman Samuel Wang.
Citigroup was the recipient of $45 billion of TARP money from the US government. One of the keys to taking the cash was that the bank would help lend more money to consumers. Facing an erosion of profits, however, C is looking to customers to make up some of the gap.
The details of the increased rates are not completely known, but reports have been coming in that indicate the amount charged for the annual fee is related to the amount of spending on the card. Some card holders have reported fees of up to $30 have been levied on their accounts.
It will be interesting to see what effect this move actually has on Citigroup profits and whether other major card holders will follow suit.
Courtesy: WSE
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