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From Banking and Finance Law Daily, July 21, 2015

Citibank to ‘pony up’ $735 million for illegal credit card practices

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency have brought a coordinated enforcement action against Citibank, N.A. and its subsidiaries seeking redress for their deceptive marketing, billing, and administration of debt protection and credit monitoring add-on products.

In its action, the CFPB alleged that Citibank, N.A., and its subsidiaries Department Stores National Bank and Citicorp Credit Services, Inc. (USA) violated sections 1031(a) and 1036(a)(1)(B) of the Consumer Financial Protection Act of 2010 (12 U.S.C. §§5531(a), 5536(a)(1)(B)) by offering actively marketed and enrolled consumers in five debt protection programs add-on products that promised to cancel a consumer’s payment or balance, or defer the payment due date, if the consumer experienced certain hardships, such as job loss, disability, hospitalization, and certain life events, such as marriage or divorce. The bureau also claimed that Citicorp Credit Services, Inc., engaged in in violations of the Telemarketing Sales Rule.

The OCC claimed that the actions by Citibank and its subsidiaries violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. §45(a)(1), which prohibits unfair and deceptive acts or practices.

Deceptive marketing. The CFPB specifically found that Citibank or its subsidiaries deceptively marketed these various debt protection and credit monitoring add-on products during telemarketing calls, online enrollment, and “point-of-sale” application and enrollment at retailers, or when enrolled consumers later called to cancel certain products. Moreover, the bureau found that Citibank or its subsidiaries:

  • made misrepresentations regarding cost, fees, and benefits for the various products;

  • used illegal practices in the enrollment process, such as leading questions to obtain billing authorizations from consumers for certain add-on products; and

  • misrepresented or omitted information about eligibility for coverage.

Unfair billing practices. The bureau also found that Citibank or its subsidiaries billed consumers for the products without having the authorization necessary to perform the credit-monitoring and credit-report-retrieval services.

Deceptive collection practices. Finally, the CFPB found that Citibank misled consumers when collecting payment on delinquent retailer-affiliated credit card accounts. For instance, a $14.95 fee associated with a pay-by-phone option was misrepresented as a “processing” fee, and Citibank did not explain that the fee was to post payment to the account on the same day it was made rather than a fee to allow payment.

Remedies. Under a consent order entered into with the CFPB, Citibank, N.A., Department Stores National Bank, and Citicorp Credit Services, Inc., agreed to provide $700 million in relief to roughly 8.8 million consumer accounts.

Specifically, Citibank must provide approximately $479 million in consumer relief to about 4.8 million consumer accounts as a result of the deceptive marketing or retention practices. It also must pay approximately $196 million to roughly 2.2 million consumer accounts that enrolled in the credit monitoring products and were charged while Citibank did not perform all of the promised services. Department Stores National Bank must provide about $23.8 million in consumer relief to almost 1.8 million consumer accounts for charging expedited payment fees on these delinquent accounts. In addition, Citibank will make a $35 million payment to the CFPB’s Civil Money Fund.

Other provisions of the CFPB’s consent order require Citibank, N.A., Department Stores National Bank, and Citicorp Credit Services, Inc., to end any unfair billing practices and to discontinue marketing all add-on products by telephone or at the point of sale, or engaging in attempts to retain consumers in these products by telephone, until they submit a compliance plan to the CFPB.

In the action with the OCC, Citibank and Department Stores National Bank agreed to pay $35 million. In addition, the OCC’s consent order requires Citibank and Department Stores National Bank to undertake a number of remedial measures. These include, among other things, creation of an action plan containing a complete description of the actions that are necessary and appropriate to achieve compliance with the consent order and the creation of a consumer compliance internal audit program.

Remain on the lookout. Commenting on the enforcement action, CFPB Director Richard Cordray stated, “We continue to uncover illegal credit card add-on practices that are costing unknowing consumers millions of dollars. In our four years, this is the tenth action we’ve taken against companies in this space for deceiving consumers. We will remain on the lookout for similar conduct and will address it as we find it.”

Companies: Citibank, N.A.; Citicorp Credit Services, Inc. (USA); Department Stores National Bank

MainStory: TopStory CFPB ConsumerCredit CreditDebitGiftCards DebtCollection DoddFrankAct EnforcementActions UDAAP

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