If you are among the many to pay off your balance monthly or make on-time payments on accounts that were fixed due to balance transfer, your account may be at risk of cancellation. Usually valued customers were rewarded with lower rates and fees, now they may be getting the axe.
This is old news in England, but Citi Group completed the purchase of Egg Banking plc from Prudential PLC May 1 2007. Egg is worlds the largest online bank and one of the UKs leading online financial services providers. Nine months after the acquisition by Citi roughly 7% of the original customer base are getting the boot. 161,000 Egg customers have been notified that their Egg credit accounts are being cancelled or available credit reduced.
Speculation is that these credit savvy customers are not profitable for Citi. Apparently the customers rarely use their cards for new purchases or pay off their account balance every month. Banks are scrambling to make up shortfalls due to subprime losses. The customer is not profitable if banks can not justify and collect usurious interest rates, late fees, over limit fees, and overdraft fees.
Several sources indicate the trend may migrate to U.S. customers. This comes at a time when disclosure statements warn that any payment reported late to a credit reporting agency may result in higher interest rates, in some cases up to 39%. Fees for over limit, late payments, and insufficient funds are at record highs, and banks are petitioning for higher fees yet. Worse yet is knowing that credit cards cost the consumer directly or indirectly 2% or more of the initial cost of a purchase. Different cards have different discount rates charged to the seller. Yes, the merchant is charged the credit transaction fee, but ultimately, who pays?