Vision Credit Education, Inc.

Bank of America, Capital One and Discover have each pledged to avoid interest rate hikes ahead of the Credit CARD Act. Citibank however has begun raising interest rates on many of its cardholders effective December 20, 2009.

Poor Timing

Citibank began mailing out thousands of notification letters on November 1 to notify cardholders that they would see their interest rates skyrocket to 22.99, 23.99 or higher beginning just 5 days before Christmas. This is poor timing at best, and is sure to upset a large number of account holders.

Not only are these rates substantially higher than the national average of 12.60% (Source: Creditcards.com) at the time of this article, they are variable. That means that as the prime rate increases, these rates will increase with it.

Fortunately, no one is expecting prime rate to increase for some time due to the weak state of the economy. That should at least be a minor reprieve. However, at 23% no one is sure to feel relieved.

Increase Does Not Affect Life of Balance Offers

Cardholders that took advantage of one of the special balance transfer offers which held the rate constant for the life of the balance should not worry. Those rates will not change as long as you keep your end of the agreement. The increase only applies to purchases and cash advances.

You should feel fortunate if you are locked in at a low rate for a balance. Those generous offers are history. Where 3.99% for the life of the balance was common just 2-3 years ago, their latest offer is 15.99% until January 1, 2011.

Such a move is likely to raise the ire of Representative Carolyn Maloney, who has steadfastly pushed for more rapid implementation of the Crdit CARD Act. While other banks have backed off a couple of months early, Citibank clearly is willing to take a chance of being targeted in order to lock in some extra profits for 2010 and beyond.

Right to Opt Out

If you would like to opt out, Citibank will allow you to keep your card open under the same terms until your card expires. In case you haven’t paid attention to your cardholder terms, your rate has likely already increased within the past year, meaning that opting out probably would not save you much.

While Citi may look bad for its untimely move, it should be noted that several other major credit card companies had increased interest rates months ago. Citi may be late to the party, but they have still embraced the interest rate increases that desperate cardholders have feared. It remains to be seen whether Citi will follow suit and adopt the changes mandated by the Credit CARD Act prior to the government imposed deadline.