Citigroup holds its customers hostage

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Across the nation, Citibank credit card holders are receiving what pretty much amounts to a ransom note: We're going to raise your rates, says the letter, in so many words, but if you spend more money, we won't.

In more specific terms, customers are being asked to spend a minimum of $750 on their cards, and if they do, they can get a rebate for 50% to 100% of their interest rate for that given month.

I can't blame anyone for wanting to implode on the spot. After all, credit cards as a group used to encourage everyone to spend, until the recession came around, when the message seemed to be -- please don't spend, and if you spend, don't spend much. But now the credit cards are encouraging spending.

And if you don't, they'll raise your rates.

Madness.

But there's a reason behind it. Ben Woolsey, director of consumer research for CreditCards.com, told the Huffington Post that Citigroup, which is Citibank's parent company, by convincing people to spend more, will cause there to be more interchange fees -- those are the fees merchants have to pay every time a customer uses a credit or debit card. And so Citigroup will make more money through interchange fees, or through the higher interest rates.


But wait, it gets better.

Yesterday, about the time Citigroup was sending out these letters, the Government Accountability Office released a report criticizing credit card companies and banks for propping up interchange fees. The report, which can be seen here, basically says that there's a monopoly on these interchange fees, noting that "Producers with market power -- such as monopolists or those offering goods not generally offered by others -- have the ability to charge high, noncompetitive prices."

So let's recap, shall we? Citigroup is asking people to spend more money, which could put them deeper into debt, if they don't manage to pay off that money within those 30 days. But if they don't spend more money because they don't want to risk going deeper into debt, Citigroup will put their consumers into more debt by raising the interest rates.

Meanwhile, Citigroup -- and other credit card companies -- are foisting artificially high interchange fees on merchants, which forces retailers to raise prices on everything, which translates into more people struggling even more to make ends meet.

It's as if the credit cards want to bankrupt everyone, but they don't, of course, because that would mean they'd lose a lot of money and have no credit card customers left. My head hurts.
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