I forgot to talk about another MISH post that was interesting, regarding Citibank's decision to jack credit card rates to 29.99% on a number of customers. My first thought is one of adverse selection - Citi's decision would force any sane person who has the ability to pay down their balance to find another card instead of paying Citi's usurious rates. Citi would then be left with nothing but a steaming pile of customers who cannot pay their bills, and who would presumably get disenchanted with their prospects of ever being able to cover 29.99% APR's, and try to find a way to walk away from their debts to Citi.
But then I had an epiphany - what if Citi is brilliant? What if they know that they have hundreds of thousands, if not millions, of customers who will be racking up increased defaults in the next 24 months, and thus increased losses for Citibank. The solution? Raise your rates so high that the customers are FORCED to transfer their balances to another bank's credit card!
Now, in order for this to be their brilliant plan, these customers would have to have the ability to transfer their debt elsewhere. I'm sure that 2 years ago this wouldn't have been a problem - but I have no idea how hard it currently is for someone who carries $5k to $20k in revolving credit card debt, while always making on time payments of at least the minimum, to transfer a balance to another bank's card.
Anyone? Thoughts? Is this a brilliant plan by Citi to force their at-risk cardholders into some other bank's arms like a hot potato?