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CFPB Fines Citibank $8M Over Debt Collections

The Consumer Financial Protection Bureau on Tuesday hit Citigroup with $8 million in fines and restitution for allegedly selling credit card debt with inflated interest rates and failing to send consumer payments to debt buyers.

In a separate action, the CFPB ordered Citibank to comply with a New Jersey state court order to refund $11 million to consumers and forgo collecting another $34 million in credit card debts from 7,000 consumers.

Two debt collection firms that once worked for Citi — Solomon & Solomon in Albany, N.Y., and Faloni & Associates in Fairfield, N.J. — also were ordered to pay civil penalties for altering the dates and amounts of debt owed by consumers.

CFPB Director Richard Cordray said the agency's actions would help consumers who were "victimized by slipshod practices." The bureau is currently working on new rules for the debt collection market.

"Citibank sent inaccurate information to buyers when it sold off credit card debt and it also used law firms that altered court documents," Cordray said in a press release.

Jennifer Bombardier, a spokeswoman for Citibank, said in an email, "We are pleased to resolve these legacy issues which impacted a small percentage of customers in the U.S."

The CFPB said Citibank "broke the law" when it provided inaccurate and inflated annual percentage rate information on almost 130,000 charged-off credit card accounts that were sold to debt buyers from 2010 to mid-2013. Citibank overstated the APR on accounts that were sold to 16 different debt buyers. In some cases, Citi claimed the APR was 29% when it was actually zero, the CFPB said.

The debt buyers then used the inaccurate APR information, collecting $4.9 million from consumers. The CFPB ordered Citibank to refund $4.9 million to 2,100 consumers that made payments to debt buyers from February 1, 2010 to November 14, 2013. The New York bank also must pay a $3 million penalty to the CFPB's civil penalty fund.

Additionally, the CFPB said that Citibank delayed sending nearly $1 million in payments from 14,000 customers to debt buyers, in violation of the Dodd-Frank Act. Since the account balances were not updated, consumers were subjected to debt collection efforts even after they had already paid off their accounts.

Citi cannot sell any debts that cannot be verified, the CFPB said. Citibank also has to give consumers information about the debt, including the name of the original creditor, the credit agreement and account statements. The New York bank must also include provisions in contracts with debt sellers prohibiting buyers from reselling the debt again, the agency said.

"Citibank cannot sell debts if it cannot provide documentation, if the consumers notified Citibank of identity theft or unauthorized use, if consumers allege in writing that they do not owe the amount claimed, or if the account is within 150 days of the end of the statute of limitations," the agency said in a press release.

Separately, the CFPB ordered two debt collection law firms to pay civil penalties for altering affidavits and the amount of debt allegedly owed in violation of the Fair Debt Collection Practices Act. Solomon & Solomon was ordered to pay a $65,000 penalty; Faloni & Associates must pay $15,000.

In May 2011, when Citibank learned that one of the law firms had altered affidavits, it stopped referring new credit card accounts to the firm. The CFPB did not impose civil penalties on Citibank because of its efforts to recompense harmed customers, the agency said.

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This is interesting in light of another article today in which CFPB Director Cordray said industry lawyers and consultants are breeding a culture of fear regarding consumer protection laws and CFPB's enforcement of such. Just searching the regulatory websites for fines, settlements, and restitutions finds a massive amount of actions and dollars assessed against our largest banks. Citi seems to be fined for something with regularity.

If our largest institutions, who supposedly have the resources to tackle compliance, can't get this stuff right, it's only reasonable for fear to be struck into smaller institutions without the resources.

I'm not suggesting that the CFPB's actions weren't warranted, but at some point, when do Congress and the regulators step back, look at the bigger picture, and determine that no amount of laws, regulations, fines, settlements, and restitution is enough to get institutions to comply? And what action will be warranted and reasonable then? Revised laws and regualations? That usually compounds the issues rather than solving anything. Charter revocation?

Or do Congress and the regulators just keep using the largest banks as a piggy bank for the U.S. Treasury?
Posted by RegGuy | Wednesday, February 24 2016 at 9:24AM ET
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