Okay, do the math on this one….
by Tom on July 7, 2009
in Uncategorized
15,000,000 credit cards and let’s say that they have an average balance of $1,000 on them (I expect that’s low).
That’s a $15,000,000,000 portfolio of credit card balances.
Let’s also say that the increase that Citibank is doing is a 2% increase in rate. According to my calculations, that’s going to take an additional $25,000,000 out of the hands of consumers and send it to Citibank every month. A couple of thoughts about that:
- The government recently put curbs into effect as of later this year that would reduce the likelihood of struggling consumers getting their rates jacked up by credit card companies.
- Citibank is jumping the gun to beat those new rules.
- So didn’t the government’s proposed changes essentially backfire on us?
I’m not a fan of government intervention in the markets but as you can see from the the previous story about Credit Card Companies, I’m even less of a fan of the way credit card companies can screw their customers over.
What sort of impact is Citibank’s power grab going to have on the economy? How big of an issue is $25,000,000 a month going to be?
Tom Vanderwell
Oh, and keep in mind that it’s our government, meaning you and me, who own a large chunk of this banking behemoth……
Citi Raises Rates on 15 Million Credit Cards: Report – Financials * US * News * Story – CNBC.com
Citigroup has increased interest rates on up to 15 million U.S. credit card accounts just months before curbs on such rises come into effect, the Financial Times reported citing people close to the situation.
Credit cards are non recourse loans. At what point does the consumer just say “I will not pay?” The credit card issuers are slashing credit lines to the amount owed thereby removing the only incentive for a consumer to stay current. What incentive is there for consumers to honor the obligation? Bankruptcy rules will be relaxed by the liberal legislature at some point in a desperate attempt to revive the consumer society, so the consumer will be able to wipe the slate clean, wait for the BK to go away, and the banks are stuck with a mountain of the bad tranches of credit card collateralized scrap paper.