Spending More Saves Citibank Card Holders From Fees

As the economic crisis continues and the activation of the Credit CARD Act gets closer and closer, credit card companies are busy trying to find new ways to earn profits without turning back to practices that are to be outlawed by the new Credit CARD Act and without scaring off their customers who are now feeling skittish, what with the historically high interest rates and fees that they are now facing.

Bank of America last month tested the reintroduction of annual fees to a select number of accounts. Using what they call “risk and profitability”, Bank of America introduced annual fees ranging from $29 to $99 to a small percentage of their card holders. Many analysts considered that Bank of America’s actions – testing the tolerance of credit card holders for term changes – may become the norm as the CARD Act activation approaches. If Citi’s latest announcement this month is any indication, that may be exactly what’s going to happen.

Following Bank of America’s wake, Citibank has announced a new term change for their credit card holders designed to earn them profits amidst the slow economy and the credit card act. Citibank recently announced that Citibank card holders who meet a minimum monthly spending requirement will be eligible for rebates on the total interest charges that they will be getting for that month. Card holders are also required to make their payments on time to qualify for the rebates.

Citibank’s offer is very attractive for credit card holders because the value of the rebates can be high enough that they will essentially cancel out a fraction or even all of the interest rate hikes that Citibank will also be introducing to card holders. However, the minimum requirement seems to be quite high, as high as $750 per month. The required monthly spending amount and the amount of interest rate increase will vary according to the credit history of the card holder, Citibank says though the company was scant on details. Citibank did say that around half of their card holders will have a chance at canceling out 50% to 100% of their interest rate hikes through the rebates program. The rebates, Citibank says, will also be based on the interest charges for the entire balance of the credit card, not only for the monthly charge.

Citibank’s move is an interesting one and further underlines the trend among card companies. If Bank of America was aiming at making profits from charging annual fees, Citibank seems to be looking at a different source altogether. By encouraging their credit card holders to increase their credit card spending, it seems that Citibank is looking at increasing their interchange fees, says CreditCards.com’s Ben Woosley. To note, interchange fee charges are already a high earner for credit card companies.