CFPB orders Citi units to pay $28.8M for servicing flaws

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The Consumer Financial Protection Bureau ordered two units of Citigroup to pay a combined $28.8 million for failing to help borrowers with foreclosure relief.

CitiMortgage, an O'Fallon, Mo., unit of Citibank, was ordered to pay $17 million to 41,000 customers and a $3 million civil money penalty for demanding that borrowers submit dozens of documents that had no bearing on their applications for assistance with loss mitigation.

CitiFinancial Servicing, an indirect subsidiary of Citigroup, was ordered to refund $4.4 million to customers and pay a $4.4 million penalty for misrepresenting the impact of receiving a loan deferment and failing to cancel optional insurance coverage.

“Citi’s subsidiaries gave the runaround to borrowers who were already struggling with their mortgage payments and trying to save their homes,” CFPB Director Richard Cordray said in a press release. “Consumers were kept in the dark about their options or burdened with excessive paperwork."

The companies agreed to the consent orders without admitting or denying wrongdoing.

"We are pleased to resolve these matters," the bank said in a statement.

The violations at CitiMortgage involved letters sent to borrowers in 2014 that did not clearly identify the specific documents or forms needed from the borrower to complete an application. The servicer was ordered to freeze any foreclosures related to the flawed application process, and reach out to borrowers with potential options for foreclosure relief.

CitiMortgage had already taken steps to reach out to some borrowers before the CFPB's adopted standard mortgage servicing rules. The CFPB said borrowers who benefitted from more tailored and accurate notices were not included in this settlement, and that it wanted to "avoid penalizing the institution for making additional effort."

CitiFinancial, a direct subsidiary of CitiFinancial Credit, originates and services a specific type of loan called a daily simple interest loan, in which interest is calculated daily, unlike a typical mortgage in which interest is calculated monthly.

The CFPB said that CitiFinancial failed to consider requests for foreclosure relief and instead offered deferments to borrowers who faced a financial hardship. CitiFinancial allegedly misled borrowers about the impact of receiving a deferment, including that the additional interest accruing during the deferment period would become due immediately with the next scheduled payment, the consent order said.

CitiFinancial also charged consumers for credit insurance that should have been canceled. The company continued to accept payments from about 7,800 borrowers who paid for credit insurance for just under four years, from July 2011 to April 2015, that should have been cancelled. The CFPB said the payments were directed to insurance premiums rather than unpaid interest, which made it tougher for borrowers to pay down principal.

In addition, CitiFinancial also prematurely canceled credit insurance for some borrowers and denied claims for others after improperly cancelling their insurance. CitiFinancial also incorrectly report to credit bureaus that some settled accounts had been charged off, meaning it was unlikely to be repaid, the CFPB said.

Additionally, CitiFinancial did not investigate consumer disputes that incorrect information was sent to credit reporting companies, the CFPB said.

Both CitiFinancial and CitiMortgage violated the Real Estate Settlement Procedures Act, and the Dodd-Frank Act’s prohibition against deceptive acts or practices, while CitiFinancial also violated the Fair Credit Reporting Act, the CFPB said.

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Enforcement actions CFPB Citigroup