PIRATES OF THE CREDIT SEA – Part 1: My Treasure Is Taken!

Regular readers of The Skilled Investor have already been warned previously of the general dangers of consumer debt and of the risks associated with credit cards. Now, The Skilled Investor has himself become ensnared. In a series of articles, I will: A) summarize my current personal credit card problems, B) explain how and what I am doing to get restitution, and C) provide my readers with suggestions on how to prevent similar situations and how to manage when you become ensnared.

Go to Part #2: What are my rights? –>>

For a year, The Skilled Investor website have posted a link to the November 2005, Consumer Reports article entitled: Credit cards: They really are out to get you. Our commentary with this Consumer Reports link has been: “Lending practices by many credit card companies in this largely unregulated industry have ensnared millions of borrowers. Once in debt, many people stay trapped in virtually endless cycles of indebtedness caused by high fees and interest rates.”

If you want to read about the woes of a horde of really pissed off credit card company customers, just go to RipoffReport.com and enter the name of any credit card company.

To read an excellent summary of abusive credit card company practices, see: “The Credit Card Market and Regulation: In Need of Repair” by Carolyn Carter, Elizabeth Renuart, Margot Saunders, and Chi Chi Wu, who all are lawyers with the National Consumer Law Center. Published in March 2006, “this paper was originally one part of comprehensive comments submitted by the National Consumer Law Center (NCLC) to the Federal Reserve Board. The comments were submitted on behalf of the low income clients of the National Consumer Law Center, a variety of other national advocacy groups, and individual members of the Board’s Consumer Advisory Council.” The other national advocacy groups who participated in this submission to the Federal Reserve Bank include: The Consumer Federation of America (CFA), Consumers Union (CU) (publisher of Consumer Reports magazine), Demos, The National Association of Consumer Advocates (NACA), The U.S. Public Interest Research Group (U.S. PIRG), and The Woodstock Institute.

Here is a summary of what has happened to me. In future postings, I will address these subjects in greater depth and let you know how things are progressing:

1) My wife and I have an excellent credit rating, and we have access to substantial credit. Between the two of us, we have five decades of very responsible personal credit management. Whenever it has been within our control, we have never been late with any required payment. We have never failed to meet our debt obligations due to any personal finance issues. Any and every problem we have had was caused by failures on the other side or failures of the mails. When there have been any problems, we have always fixed them immediately after we became aware of them. When we were victims of identity theft last year due to internal mail theft at a Pasadena post office, we jumped right on it. We promptly did our research, made all the necessary filings and notices, locked down all credit reporting, and avoided any personal financial damage.

Similar to identity theft, with credit problems you need to get on them immediately. Furthermore, just like a burrowing animal, you always need to have a way to get out the back door, when a snake is at your front door. With debt you need to have other assets that will help you to escape when problems arise. Yes, I know that many people have much more challenging financial circumstances and cannot do this. I am highly sympathetic. The NCLC paper above details how people’s lives can be destroyed by rapacious credit card companies, when they cannot escape. Credit card companies are taking unfair advantage of people in difficult circumstances. In my case, we did not do anything wrong, but we still have been plundered.

2) With four decades of corporate employment and management experience between us, we know that: A) You document everything said verbally by taking careful notes; B) You are always polite yet determined; C) You write detailed letters; D) You keep everything in orderly files; and E) You retain financial records for a loooong time.

3) Since 1992, my wife and I have been “Charter Members” of the ATT Universal Cash Rewards Card, which combined my old ATT long distance calling card with a credit card and made for one fewer plastic card in my wallet. Things were fine with this credit card for years.

4) Citibank manages this affinity credit card, even though ATT’s brand name is all over all the statements. You have to hunt through the small print on the back even to find Citibank’s name. Citibank is responsible for proper management of the card, but ATT’s brand reputation goes along for the ride. In our case and many others, Citiba’s practices take down ATT’s reputation simultaneously.

5) In the spring of 2006, ATT Universal Card offered a 2.99% APR loan for 18 months, which I took advantage of. (As an investment manager with knowledge and experience, I love the cheap liquidity of recent years. The Federal Reserve’s flood of liquidity after the dot com bomb until recently has been like manna from heaven. I am sorry to see it go. However, this kind of cheap debt is ONLY heaven-sent, if you manage it well and ONLY if you have the financial resources to liquidate any and all debts at any time, if problems arise.)

6) In the summer of 2006, Citibank Vice President and General Manager, Julie A. Garry, wrote two letters to me saying that this ATT Universal credit card program would be shut down for unspecified business reasons and all accounts would be closed to new transactions. All contractual terms would stay the same as existing balances were paid off. That was fine with me. (Initially, I though Ms. Garry was an ATT executive, though now I understand that she is a Citibank executive who oversees their Jacksonville, Florida credit card operations.)

7) My wife and I are very busy people and in our division of family labor, my wife pays the bills. We have a lot of bills. Some are paid via auto payments and some are by check. Every month, my wife has always made the minimum required payment on time to Citibank. All of the monthly statements record that these payments were posted well ahead of time.

8} In the summer and early fall of 2006, my wife made repeated attempts over a four month period to get Citibank to set up auto payments by using the same account that we had been paying Citibank with via checks sent through the mail. Her efforts were met with failure and frustration. Citibank’s story kept changing. Auto payments were set up and then they were not, but they never did go through. We still do not understand why auto payments have not worked with Citibank. Before, during, and after these four months, my wife kept paying all required minimum payments by check through the mail on time.

9) In March 2007, we did our normal review of our personal and business finances in preparation for taxes. I wondered why our ATT Universal Card minimum monthly payment had jumped from just over $200 to just over $500 from October to November of 2007 and then has stayed at this higher level each month thereafter. We assembled all our records chronologically. All payments were made on time. My wife is as busy as I am. She had not noticed among all our other bills that the minimum payment had been bumped up. However, much worse, all the increased payments had gone to interest and not principal, because the interest rate had jumped to a default rate of 32.31%!

11) We began calling to ask questions. We knew that our October 2006 minimum payment was received and posted ahead of the due date. Then on the due date, somebody at Citibank tried to put through an automated payment for the same minimum payment amount that was already paid that month. This automated payment process again failed, as it had before. However, this time the result was highly unfavorable to us, to say the least. Someone in Citibank’s Jacksonville operations put my account into default, jacked up the APR from 2.99% to 32.31% and charged a fee. The minimum had already been paid and booked, but my account was now in default. No separate notice of default was mailed to me. No notice of default was provided on the next or any subsequent monthly bill. If we were not watching things like a hawk, which my wife was not, it was easy not to notice that all the interest rates on the second page of the statement had magically changed. The 2.99% special loan interest rate jumped to 32.31%. The 16.31% standard purchase interest rate jumped to 32.31%. The 23.31% cash advance rate jumped to 32.31%. A $29 returned check fee was added to the bill. Apparently, I was now was in the land of Citibank’s worst credit risks, and we had not known about it for six months! Nobody at Citibank bothered to tell me that I had become a bad credit risk. Citibank happily accepted our higher minimum payments, with all of the incremental treasure going to Citibank’s exorbitant default interest rate charges.

12) My wife spoke on the telephone to a nice lady at Citibank, whom I will call Deckhand Moe. (I will use real names of VPs and other company officers. I will use nautical pseudonyms for lower level Citibank credit card operations employees, who only give out a first or last name and no telephone number to you, anyway.) On the telephone, Deckhand Moe graciously restored the 2.99% interest rate and refunded two months of back interest which had been paid at the higher 32.31% default. My wife asked about the prior 4 months of excessive charges. Unfortunately, Deckhand Moe could not do anything about those earlier months. We would need to write to Vice President Garry. My wife told me how Citibank has responded, and I arranged for a wire transfer to pay off the loan balance in full that afternoon.

13) A few months of such excessive interest rate charges will not cause us severe financial damage. (However, similar practices have been devastating to a multitude of others of lesser means who cannot escape from Citibank or other credit card companies.) I could have just ignored this situation and moved on. However, this is MY treasure, not Citibank’s. I want MY treasure back! I think the odds are pretty good that I will recover my treasure, but my voyage of recovery has already turned stormy with Citibank.

Next: PIRATES OF THE CREDIT SEA: What are my rights?