Citigroup eases credit card rate-rise policies

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By Dan Wilchins

NEW YORK, March 1 (Reuters) - Citigroup Inc. (C.N), the third-largest U.S. credit card issuer, said on Thursday that it will no longer automatically raise interest rates for cardholders who default somewhere else.

"Universal default," which involves raising rates when a person defaults on obligations to other lenders, has long been under fire from consumer advocates who argue that it victimizes poorer borrowers.

Citi also said that it will no longer raise borrowing rates and fees for consumers before their cards expire, which is typically two years after they are issued. Credit card issuers have traditionally been allowed to boost rates and fees at any time, for any reason.

The changes were announced five weeks after a Senate Banking Committee hearing at which card industry critics pressed for increased scrutiny on billing, marketing, and disclosure practices.

The United States is a nation of debtors. According to the Federal Reserve, there was about $2.4 trillion of outstanding consumer debt as of Dec. 31. About a third of that is estimated to be credit card debt.

American consumers have about 1.5 billion credit cards, including retail store cards, gas station cards and general purpose charge cards like Visa or MasterCards, according to the Nilson Report.

Citi said consumers had always been permitted to opt out of the universal default provision on their Citi cards, but the bank has now abandoned the practice entirely.

U.S. Senator and Democratic presidential hopeful Christopher Dodd of Connecticut told credit card executives at the committee hearing, "If you currently engage in any business practices that you would be ashamed to discuss before this committee, I would strongly encourage you to cease and desist that practice."

But Dodd also said that consumers must take more responsibility for understanding their credit card contracts.

Travis Plunkett, legislative director of the Consumer Federation of America, estimated outstanding credit card debt amounted to between $750 billion and $800 billion in November 2006, based on Federal Reserve figures.

Citi's North American credit card unit had about 150 million consumer accounts in the United States and Canada as of Dec. 31. Citi as a whole earned about 15 percent of its total revenue from its North American credit card business in 2006.

The No. 1 U.S. credit card issuer is Bank of America Corp. (BAC.N), followed by JPMorgan Chase & Co. (JPM.N).

JPMorgan Chase and Bank of America do not have universal default provisions in their credit card agreements, representatives for the companies said.

((Reporting by Dan Wilchins, editing by Tim Dobbyn; Reuters Messaging: dan.wilchins.reuters.com@reuters.net; +1 646 223 6320)) Keywords: CITIGROUP CREDITCARDS/

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