Here's what it says:
To continue to provide our customers with access to credit, we have had to adjust our pricing.
....
These changes include an increase in the variable APR for purchases to 29.99% and will take effect November 30, 2009.
(It then goes on to say that if you pay on time you can get 10% of your interest charges back, which lowers the effective rate by about 3%.)
I have multiple copies of this letter, all on the same theme - 30% interest rates, vastly higher than they were.
The obvious message in this letter is simple: Those who are responsible and can pay their bills will be subsidizing those who cannot - that is, you, the responsible cardholder, will pay the deadbeat's bill!
Citibank has 92 million cards in circulation and is #4 in market share in terms of purchase volume, with 11.05% of the total.
Overall, consumers hold an average of 5.4 revolving (credit) cards. Half of all undergraduates in college have 4 or more cards.
Average card debt per household, including households that have no cards at all, is $8,329. For households with one or more cards, it is $10,679, both figures at the end of 2008.
Of the 73% of families with credit cards, 60.3% carried a balance. This means that for those with balances, the average balance is nearly $18,000.
If the previous interest rate on those cards was around 20% and is now 29%, the average family with a balance (about 44% of all households) was paying $3,600 in interest charges previously, but now will be paying $5,220, and increase of $1,620 a year or $135.00 a month.
There are approximately 116 million households in the US. As a consequence the decrease in disposable personal income attributable to this sort of interest rate change is approximately $113 billion, or a bit under 1% of GDP.
And that's only the direct cost of the interest. What cannot be measured is the impact on consumer spending that comes from changes in consumer behavior - that is, this is only the interest component of the change in rate.
If this interest rate change prompts people to pay down just 25% of their credit card debt over two year's time the impact on GDP simply from paying down the debt as opposed to holding it level will raise the impact to approximately 1.9% of GDP, or about $270 billion annually in foregone consumer spending.
Good luck with your "recovery" thesis folks.
