Citi CEO open to credit card rate cap; says bank on upswing
Citigroup Chief Executive Vikram Pandit indicated the banking giant would support a cap on credit card interest rates for new accounts, if lawmakers in Washington DC revive an effort to reign in the high rates many companies are now charging.
"We're completely in support of having a rational rate structure,'' Pandit said during a meeting in Boston with Globe reporters and editors. He stressed that any rate limits would have to be applied across the industry and only on new accounts.
Credit card companies have recently jacked up interest rates to as high as 30 percent ahead of a new federal law, to take effect next February, that limits how issuers can modify agreements with their customers. Efforts by some members of Congress to cap card rates, at 15 percent for example, have failed.
Pandit noted that Citi adopted a 10 percent rate on its cards three years ago, anticipating that other card companies would follow suit. But competitors did not, he said; instead, his company got hurt because some customers chose to pay off higher-rate cards first and started defaulting on their Citi debts.
He warned that if Congress did pass a rate cap, it could lead to banks reducing credit to customers. On the one hand that might crimp economic growth, Pandit pointed out; but on the other, such a cap might be prudent because it would curtail the kind of easy lending that landed so many consumers in debt.
"Whatever it is you put out there is going to impact the amount of credit creation in the US economy, and it's going to impact who's going to get cards. Very simple," Pandit says. But high rates also hurt consumers, he acknowledged. "I don't disagree with the notion that having high rates in this environment is not conducive to driving economic recovery."
But Bill Hardekopf, chief executive of LowCards.com, a website that rates credit card offers, said a real debate about rate caps is unlikely because the banking industry vigorously opposes such a measure.
"I would be shocked if a cap is ever instituted," he said.
In his talk with Globe staff yesterday, Pandit touched on a number of steps Citi is taking to improve its financial standing about being hammered by the financial crisis last year. The company, he said, has "turned the corner" and expects to soon be able to repay the $45 billion bailout it received from the US government. The investment effectively gives the government a 34 percent stake in the company.
Citi has raised $85 billion in the public markets or by selling businesses and has significantly improved its capital position, and is continuing to sell noncore operations, he said.
And Citi is eager to repay its bailout funds: "It's time for us to repay the government, with a debt of gratitude, as well as with a good rate of return,'' he said. He said Citigroup is working with regulators on how to do that, calling it a "big event" financially and "a good psychological event too, for everybody involved."
Pandit became chief executive of Citi in December 2007, after it suffered large losses on mortgage securities at the company. He has agreed to a salary of only $1 this year, and also is not receiving stock compensation.
Pandit said the company is focusing on its culture and wants to "be part of America's recovery,'' by offering new home loans and renegotiating more than 700,000 mortgages that had been in danger of foreclosure. "We do have a sense that it's good for everybody involved to keep people in their homes,'' he said. He acknowledged Citi was part of the nation's credit problem when it made $120 billion in mortgage loans at the peak. Last year, he said, the bank made about $80 billion in mortgages.
Citi will try to expand its customer base in the Boston area, but not necessarily by adding to its 31 branches here, Pandit said. Online services, ATMs and bank kiosks are part of the plan, he said. "We think we can serve more clients in Boston than we're serving right now and we want to take advantage of that."