06-132 Citibank responds to concerns about ReadyCredit card
Monday 1 May 2006
Citibank has agreed to make some changes to its ReadyCredit card following concerns raised by ASIC.
Citibank has responded to ASIC’s concerns about the introduction of a $160 fee charged to some ReadyCredit customers who failed to use their card for purchases. Citibank has agreed to allow affected customers until 30 June 2006 to avoid the ‘failure to spend’ fee or close their accounts.
ASIC was concerned that previous promotional material for the ReadyCredit card contained information that may have encouraged consumers to believe that no or only minimal fees would be incurred, regardless of what was charged to the card. While ASIC’s investigation concluded that Citibank did not legally mislead customers, this did not mean that customers did not have valid grounds for complaint.
ASIC’s Executive Director, Consumer Protection, Mr Greg Tanzer today welcomed Citibank’s response. ‘It is unfortunate that Citibank chose to shift the goalposts in order to discourage consumers from taking full advantage of the promotional offer to obtain a lower interest rate. It’s not surprising that the introduction of the $160 fee generated a significant number of complaints.’
‘Nevertheless, it is encouraging to see Citibank respond constructively to the concerns of ASIC and of its customers’, Mr Tanzer said.
Citibank has now written to 950 affected customers, allowing them an extended period until 30 June 2006 to avoid the fee by spending $1,000 or closing their account. Citibank has also confirmed that where the fee is incurred, it will attract interest at the rate applicable to the balance transferred, and not the higher rate that applies to purchases.
‘Lenders should be careful about promoting products as no or low interest, or as having no fees, if consumers are not able to use the product in a way that takes full advantage of those features’, Mr Tanzer said.
‘ASIC will be vigilant in responding to complaints and will continue to encourage all lenders to consider the entirety of their obligations to their customers.’
Mr Tanzer also encouraged consumers to look carefully at the detail of credit card balance transfer offers. ‘A low or no interest rate offer for balances transferred is only made in anticipation of the card being used for new purchases’, Mr Tanzer said. ‘Consumers need to look beyond the balance transfer rate, and consider factors such as the rate applying to subsequent purchases, and the way in which payments are applied. In most cases, payments are applied first to transferred balances and not to subsequent purchases, meaning that those purchases quickly attract interest at a higher rate.’
Background
Many consumers opened a Citibank ReadyCredit account in response to offers of low interest on balances transferred. Since late 2005, the fee has been applied to a number of accounts that were not used for purchases and that were open for more than 12 months.
The fee could be waived if those consumers spent $1,000 within a defined period, intended to encourage consumers to use their accounts to make purchases.
In addition to providing consumers with the opportunity to avoid the fee, Citibank gave more notification of the change than the minimum 20 days required by the Consumer Credit Code.
The introduction of the new fee prompted a number of consumer complaints to ASIC, as well as to other agencies including the Banking and Financial Services Ombudsman and the Banking Code Monitoring Committee
