Citigroup's (NYSE:C) consumer banking business is getting it into trouble again — and this time the problem isn't mortgages.

The third-largest bank's messy and disappointing fourth-quarter report included an unexpected $500 million reserve for legal and regulatory issues "related to U.S. consumer businesses," in the words of Chief Financial Officer John Gerspach. It also appears to be related to areas scrutinized by the Consumer Financial Protection Bureau, which last year took enforcement actions against three big credit card companies over their marketing of payment protection add-on products and related practices.

 "I don't think it's any secret that the CFPB has been reviewing various consumer products, and in fact, they are currently reviewing us. But, you know, I'm not going to say anything more about individual regulator discussions," Gerspach told analysts during a Thursday conference call.

A source familiar with the review said it includes credit card add-on products.

Gerspach also said that the $500 million reserve was not tied to the wide-ranging mortgage problems that Citigroup and other large banks have spent years trying to settle, but he would not be much more specific.

"It's tied to the U.S. consumer business," he told reporters, before declining to comment "on reserving actions unless it's related to a specific settlement."

Such a settlement might not be official yet, but one of the likeliest targets appears to be the insurance-like payment protection plans that Citigroup and other banks sell to credit card customers. Capital One (COF) and Discover Financial Services (DFS) last year agreed to respective settlements of $210 million and $214 million over their marketing of those products, and the CFPB has warned other banks they will face similar scrutiny.

 "We continue to expect that more such actions will follow," CFPB Director Richard Cordray said in September. "In the meantime, we are signaling as clearly as we can that other financial institutions should review their marketing practices to ensure that they are not deceiving or misleading consumers into purchasing financial products or services."

A CFPB spokeswoman declined to comment on Thursday.

Banks have scrambled to review their payment protection plans, identity-theft protection and other add-on products since the summer, when the CFPB announced its first action against Capital One. Bank of America (BAC) stopped offering its version of payment protection in August, but Gerspach said that Citigroup is still offering some versions of card add-on products.

 "Like the rest of the industry, a lot of those products have been re-reviewed and rethought," he told reporters. "We've rethought our offerings. There are still add-on products that are being sold, and there are some that we've altered."

Citigroup could also be facing a regulatory action similar to the multi-agency settlement with American Express (AXP), which in October agreed to pay $112 million over its marketing, debt-collection and credit-reporting practices. Or it could be reserving against an eventual fine over anti-money-laundering issues, after the Office of the Comptroller of the Currency issued a cease-and-desist order against the bank in April for violating the Bank Secrecy Act. But industry members say it is unlikely that such an action would be directly tied to Citigroup's U.S. consumer business.

And any settlement may not be imminent; last year, Discover warned that it was expecting an enforcement action over payment protection eight months before the deal was finalized.

Citigroup is facing other problems in its credit cards businesses, where both loan balances and revenues fell. Gerspach blamed industrywide problems, including consumers who are reluctant to take on new debt and banks that are reluctant to lend to less creditworthy customers, but he also said that Citigroup is only about halfway through its efforts to revamp its credit cards business. It hired cards chief Jud Linville from American Express in September 2010, and he is now "about 18 months into the repositioning" of the cards unit, Gerspach said. "It's probably about a two-and-half to three-year process to complete the repositioning."

The mysterious reserve was only one of several legal expenses weighing down Citigroup, which took overall charges of almost $1.3 billion for legal and related costs. That included a previously announced $305 million charge for a foreclosure-related settlement with regulators. The bank also recorded almost $1 billion in previously announced costs, tied to the bank's efforts to slim down its operations and lay off 11,000 people.

Overall profit and revenue missed analysts' estimates, even accounting for a slew of one-time items including the legal costs. Net income rose 25% to $1.2 billion in the fourth quarter, or 38 cents per share, from $956 million, or 31 cents, in the year-ago period. Excluding the impact of one-time items, Citigroup's fourth quarter profit was $2.2 billion, or 69 cents per share — still far short of the 96-cent-per-share profit analysts had expected.

It was a "disappointing" first report under new Chief Executive Michael Corbat, he acknowledged during the analyst call Thursday. The bank's board abruptly ousted CEO Vikram Pandit and installed Corbat a day after its third-quarter report in October. Since then he has tried to speed up the bank's recovery from the financial crisis by closing down operations in some countries, selling branches and streamlining some of the bank's management.

Investors agreed with Corbat's review of the earnings, sending Citigroup shares down almost 3.3% by midafternoon to $41.08.

"To be clear, we're not satisfied with these bottom-line earnings," Corbat told analysts. "Our focus is not only on putting the drag of legacy issues behind us, but also in optimizing the efficiency and returns of our business as a whole."

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