Is Citibank on a death wish?
 

I was thinking about all the crazy promos that citibank has going... Starting with the "awesome" TY fixed point redemptions, continuing on the repeated bonus availability on the same card and currently churning on the AA cards. It makes me wonder what Citibank is up to? I mean, this would seem to be completely unsustainable. FT (and savvy non-FT) community is taking them to the cleaners. It is hard for me to come up with a reason as to why Citi thinks this is in their interest. And I am solely talking about the repeated bonus availability. This is not attracting new customers as by defination, churners are repeat customers. And your average Joe/Jane will get these cards for one time bonus, no need to give them out again and again. Can anyone think of any logical business reason for this apparent suicidal behaviour on the part of Citibank? And how do you see this panning out in the next 6~12 months?

Maybe they might do something about churning in the next year or so, but it is probably not as big of a problem for them as you might think, i.e. for every churner there may be 10 people who get the card and keep it, maybe even more. I noticed my friend using an AA Citi card to pay for our lunch the other day and asked her how long it took to get her 30K miles and she had no idea what I was talking about; she has had the card for several years. In addition, while most churners pay off their balance in full, a lot of other people do not, and the interest rates can be pretty high on mileage credit cards. So I think the impact of churners to Citi is minor, otherwise they would prohibit the practice.

I agree with you, but you do not need to allow churning to realize those benefits. So why allow churning at all? I don't see anything for Citi in this.

One benefit that Citi gets from the churners is cheap advertising. They know most people will probably tire of churning but keep the card. The people who churn also talk to others about the card. Those people may apply for one or possibly 2 "new" cards - but again, they will tire of the churning.

Hard core churners are probably a very small percentage of the Citi cardholders so churning is not a significant impact.

Just my opinion.

Here's a question I had, maybe this isn't the right thread but I thought I'd give it a shot.

I think I understand the concept of churning CCs. Sign up, keep card until bonus is deposited, cancel card, wait certain amount of time, sign up again, repeat above.

My question is, doesn't this wreak havoc on your credit scores? I guess if you own a home and aren't planning on moving/refinancing/getting a car anytime soon it may not matter, but still. What does this do to your credit score/how do you avoid it getting lowered by constantly getting/canceling cards?

PM me if this isn't something kosher to talk about in the open...
Thanks for any help.

Number of inquiries in past (12 months, iirc) does have a negative effect on your credit score.
I believe you can expect a 5-15 pt drop for an inquiry?
I'm sure there is a 'maximum' number of pts you can lose.
Number of open accts also has a factor. If you are churning, you're not increasing the number of open accts...and that is good.

If you are not planning to buy a house / car / refinance loan / etc, letting your credit score fluctuate doesn't have a terrible effect. Stop churning, wait for the inquiries to clear, and your score will go up again.
If you have good credit, churning probably wont' drop you below 'pretty good' credit.

I was carrying balances on 2 other cards and when I opened 3 Citi cards my score went down and Discover cut my limit on my one card.I have no plans to buy a car etc and my score will rebound with time.Everyones situation is different.

Not quite.

Number of 'New Accounts' opened does increase with each churn. When you close that account (after your sign on bonus has paid out for example), that 'accounts recently opened' negative effect does not decrease after the account is closed either.

Thus, two definite items hitting you each churn:
1) inquiry
2) New Account opened.

The only thing that removes these two negatives is 'time'.

Fortunately, they don't affect your score all that much. I churn constantly, and I'm still above 730 on Experian (and the other two I'm near 800 because Citi doesn't inquire on Trans Union or Equifax).

This behavior is far from suicidal. By and large it has to be a money making venture for the bank, else they will not keep it going as long as they have.

Just consider the fact that about 6 years back Chase and Wachovia were giving huge amounts of UA miles for opening HELOCs. We opened the HELOCs, took out large loans and wired back the money the same day/next day. That amounted to an average of ~300K miles for <$100 in interest and other fees. Some FTers did this repeatedly on multiple properties and raked in a couple of million miles each. Banks did not go down because of this. They went down by losing hundreds of billions on sub-prime loans. These mileage bonuses are chicken feed to them. And the number of people out to collect miles is very small compared to the total CCs and new accounts coming their way. It is the cost of doing business. Some people will use the loopholes and it has to be accepted for the larger goals they have set for themselves. So I would not lose any sleep over Citi offering some promotions. Their stock did not go down from $60/share to <$3/share because of promotions.

I agree. Mileage bonuses might be chicked feed to them, but what I am having a hard time understanding is why let people churn? What more are they getting out of letting people churn than not letting them churn? What has Citi figured out that all other big CC companies have decided otherwise? Is there a great marketing bulls-eye that Citi has hit that others have missed? The only thing that someone mentioned is the publicity and thus getting new people to sign up, which seems reasonable. But when I think about it, it seems like a long shot. My circle of friends are those that swear off credit cards and those that are hard core (as to getting the last blood out of a deal). My recommendation to my friends will only serve one purpose. Get my hard core mileage junkies to do the same thing that I do, while my other friends are not going to act on it. So in a way, it is a net loss to Citi. It is very very hard to get new people to play this mileage game, the initial threshold is very high, IMO.

Clearing up soem Info
 

Inquiries remain on your credit report for 24 months not 12, and an inquiry has an effect of 2-5 points per my experience

Agreed completely. Besides Citibank has been declared "too big to fail", so no matter what they do we as taxpayers will all be bailing them out forever.

I have found that the churning of credit cards will reduce your credit score by about 30 points. Depending on where you are on the curve, this may, or may not, be significant.

For me, it is not significant because, even with churning, my Experian score is above 765.

If you carry a balance on other cards, opening another account decreases your debt/available credit ratio, which could be a good thing. Then when you close it, you then increase your debt/credit ratio, a bad thing. Bad things pobably affect scores more than marginally good things. If you don't carry credit card balances, the ratio probabaly doesn't have much of an impact.

Back on topic--CB does not have a death wish. It is already dead. All that is keeping the doors open is the US of A guarantees of deposits.

But, that's good enough for me. At least as long as I owe Citi money rather than the other way around.

As for the churning, since Citi has already gone down the tubes the execs may have other concerns at the moment.

Anyone considered the possibility that it's just their own stupidity--that is, their systems aren't set up to detect or prevent it?

I mean, we all take advantage of loopholes with airlines and other providers because they're just too big to notice the little things we can do...I'd assume the same could be true of a giant bank.

Could be.

Thanks for the info, OP. I'll have to look at this. I have been a Chase/United user, but if Citi is permitting churning, I may have to reassess my card usage.

"I see dead banks."

A positive for your credit score is more available but unused credit. That will affect your credit score in a positive way if you keep an account open.

This has been discussed many times in the 'Other credit card forums'. My take is:

1) The larger the corporation, the slower it is to change. This is due to complexity of updating established procedures across multiple divisions.

2) There is the free word-of-mouth advertising they get from happy churners. I have told many of my friends, but only two took me up on it. And those two just did it once , kept the cards and used them to accumulate debt.

3) I suspect there are many Citibank employees who churn themselves, so naturally they don't want to kill their favourite goat.

Based on current environment, I suspect Citi will not allow churning forever. I just don't know when it will close this loophole.
Contract to others, I actually current have 0 Citi AA card and just plan to get first one. I was too busy for other bonus points for Citi TYN card previously.
Luckily I at least get 2 cent per point this Feb. Now TYN is nearly dead so I will try get several Citi AA cards.

Another possibility is that they haven't found a cost-effective way to do it, given the several types of cards that they do want you to get. They currently allow only one bonus per account, and it would be "too drastic" for them to allow only one bonus per customer, but they havent' figured out a good in-between restriction that they can communicate clearly.

It's simpler at Chase: For UA, you either get the UA Visa or nothing. So it's easy for them to say "if you had a UA card before, you won't get another bonus."

But AA has MC and Amex and (if you look hard enough!) also Visa, and they want you try each of these. And coming up with legal language which entices users to try each of these while only allowing them to try one of each of these is an issue.

There's already enough confusion at other programs about Platinum vs World vs Signature, and whether the bonuses can be gotten just once more when they introduce a new "degree" of the same type of card. Citi may realize that wording such as Chase's cuts down on appllications by people who say "I won't bother, I might not get a bonus", and figures the lost customers with Chase-type language would cost them more than the churners currently do.

Meanwhile, Citi's lawyers are probably too busy with other stuff to spend much of their time figuring out how to come up with clear lanuage about when you would and wouldn't get the bonus.

Also, there are seemingly fewer and fewer humans available to deal with this. Every month more is done by automation. The computers decide who gets a new card, the computers decide how much they get, and the humans are dwindling so much they don't even spend time to pitch add-on products as much any more! (I guess they found the return on add-on products wasn't worth the extra minute per card activation call?) It's remarkable that card activation still involves a human (but for how many more months) when at other card companies that too is automatic.

Finally, keep open the possibilty that Citi may have found that churners are more loyal. The close relationship between the amount of cards you can get by churning only Citi and the point at which your inquiries in 6 months max out is very tight. So Citi may have realized that this keeps people from applying for as many cards from the competition. (Look at how many posts -- even threads -- there have been in the Other Credits Forum about stuff like "can you still apply for a Chase card if you're churning Citi?"!)

What's your source of information for the claim that "FT (and savvy non-FT) community is taking them to the cleaners?" :confused: Do you have the financial info to back up this claim? Or is this just wild speculation on your part?

As for whether they have a death wish, I doubt it. But if they are on a death watch, well, I think everyone knows that! :eek:

Another thing Citibank may be counting on is churners losing track of all their accounts, and thus missing paying on time occasionally and/or auto-renewing an account they didn't intend to.

They have been doing this for enough years, and the economy has gone down enough, that if their strategy was not giving them a net gain, they would have dropped it. They haven't. Just because you can't see their logic does not make them wrong.

For example, how many of us have tried to explain our Mileage Runs, or CC churning, or buying coins from the Mint, etc. to friends and family? A few of my friends have listened for a few minutes and congradulated me, but universally none have gone to the effort to actually try (other than the token effort of my parents who did bother to sign up for Dining Rewards since they usually eat out, so they might as well get some miles sometimes, but it did little to re-direct which restaurants they go to). How about that guy who scored early on the USAToday promo of 1000 miles for less than 1 cpm for new accounts? He paid for a month's subscription for all the apartments in his building and scored all the miles! Or PuddingGuy, or BlueGopher scoring 1.25 million and 600+k respectively for well under 1 cpm buying hige quantities of pudding and cheese?

By the same token, our friends and family think we are a bit nuts, but to us the advantage is clear.

Telling someone else they are nuts is rarely productive; and in these forums is potentially detrimental to the community who are trying to score on those promos.

And it is impossible to get an intelligent answer here since noone can know (except those who actually know, and they are restricted from telling).

Kindly play in your corner quietly,

Steve

When a bank creates a credit card account the revolving line of credit is typically bundled with others into a security. Citi earns fees when selling these securities. The line of credit for a specific card account remains in the same loan pool for the duration of the security. Different from mortage backed securities the issuer retains ownership of the credit card account because revolving credit lines do not have a predetermined amortization rate or payoff date. The issuer distributes interest payments to the owners of the securities, and uses principal repayments to fund loans to cardholders who draw more of their credit line during the life of the pool.

In this context you can see that a card which is used briefly and then paid in full is useful because it generates early cashflow for the loan pool with virtually no risk of default. The aquisition cost of the new accounts, including the miles, points or affiliate payments are no doubt built into the pricing of the securities.

It would be better for Citi if you kept and used the card long term, because Citi would earn fees (merchant transaction fees, annual fees, foreign transaction fees, various penalty fees). It would only be better for the security holders if you carried a balance, because they only receive interest, not fees.

You can read more about this in the FDIC Credit Card Securitization Manual

http://www.fdic.gov/regulations/exam...ecuritization/

...and you can read ample opinions about this process, including the "off balance sheet" variants using search term: credit card securitization

Yes, they are stupid.

They wouldn't waive my annual fee (literally, the people aren't empowered to think - they can only do what the computer lets them) so I had to close my account and open a new one with the fee waived AND they now owe me 30,000 bonus miles. I didn't want a new card or the bonus miles....but I won't pay $75 to avoid it either.

To top it all off, they only approved my new card for $1,000 which isn't enough to charge anything meaningful, so they also won't make any money on my charge volume now. The line on the closed card was $28,500 - and they won't transfer lines between business cards.

Completely backwards thinking over there.

Absolutely stupid.

maybe I'm wrong, but rumors of their death may premature

from CNN

Citigroup delivers surprise $4.3 billion profit
http://money.cnn.com/2009/07/17/news...ion=2009071708

Completely, utterly, indefensible wild speculation on my part. LOL. After all, it was a speculative Q. :p

You think everybody knows that? You a mind reader or is it just wild speculation on your part? (:confused: / :rolleyes: - take your pick)

So, I guess this strategy is profitable to them. More power to them as it seems like a very deliberate strategy on Citi's part.

So, if Citi has its reasons for this, why would it care if someone on FT calls them nuts? Unless you are telling me that it might get them so angry that they will withdraw the multiple bonuses based on some anonymous post. :rolleyes:

On one hand you are claiming that Citi has a good professional reason for this, but on the other hand you are claiming that they might become unprofessional (putting personal anger over sound business sense) by some average Joe's internet post? So what is it?

IMHO, it is quite easy for banks (and other corps.) to massage their earnings and costs and come up with pretty much any profit they like.

I suspect Citi, in its present, conglomerate form, will not exist in the not so distant future.

In any event, as long as they don't take my AA miles with 'em when they go--don't really care. :D

So what happens when a churner cancels the card after one and a half months (after getting the bonus and paying off the balance)? How long did it take for the card to get into the security?

When I apply for an AA Amex and an AA MC on the same day and am approved minutes apart, do they end up in the same secuirty?

I know only what I read. In my experience most issuers have the ability to "reinstate" recently cancelled cards, which suggests that the card account persists beyond the consumer cancellation date. I would expect the account to remain live for at least another billing cycle.