Citi Pays Steep Price for Credit Card Add-On Products

WASHINGTON — Citibank has joined a growing list of banks and vendors that have paid a stiff penalty for allegedly using deceptive marketing and billing tactics in selling credit card add-on products.

Citibank and some affiliates on Tuesday agreed to pay a total of $770 million in fines and restitution for charges related to its add-on products, falling just $2 million shy of the record amount that Bank of America Corp. was forced to pay last year for similar issues.

The orders filed separately by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency again demonstrate that regulators are serious about significantly cracking down on such products.

 "We continue to uncover illegal credit card add-on practices that are costing unknowing consumers millions of dollars," said CFPB Director Richard Cordray in a press release. "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."

In their orders, regulators said Citi unfairly hooked consumers into debt protection and credit monitoring products that were partly administered by vendors and charged deceptive fees for collecting payments on certain delinquent card accounts. 

Though the CFPB has been the most aggressive with actions against marketing and selling of add-on products, the OCC has also come down hard in this area in recent years.

The CFPB's first action against add-on products was taken jointly with the OCC in July 2012 against Capital One Financial Corp. for allegedly aggressively marketing and selling certain add-on products.

Soon after, both regulators took similar actions against Discover, and then Bank of America and U.S. Bank in 2014, to name a few. Citi's order is the tenth action the OCC has taken since July 2011 related to "unfair or deceptive practices" and the eighth action related to "add-on" products.

Earlier this month, the CFPB also began publicly citing vendors directly for improperly marketing and selling add-on products on behalf of financial companies.

"We are still finding that thousands of consumers paid for add-on benefits they were promised but never received," said Cordray in a July 1 press release announcing separate orders against add-on product vendors Affinion Group Holdings and Intersections Inc. "We continue to address unlawful conduct in this space and are signaling to other financial institutions and their service providers that their marketing and billing practices must be fair to consumers."

In the case with Citibank, the orders settle an extensive regulatory investigation in which the bank was cited for activities in partnership with vendors dating as far back as 2000 and extending through 2013 with some products. Specifically, the CFPB claims Citibank and two subsidiaries used deceptive marketing and billing for debt protection and credit monitoring products. The deceptive marketing came into play particularly during telemarketing calls, online enrollment or enrolling with a retailer, the agency said.

"For example, confusing text on pin-pad offer screens at the point of sale increased the likelihood that consumers applying for credit cards at a retailer would not realize they were both applying for credit and purchasing debt-protection coverage," the CFPB said. "These illegal practices affected an estimated 4.8 million consumer accounts."

As part of the marketing violations, the CFPB said telemarketers also misinformed consumers about the alerts they would receive in signing up for credit-monitoring protection as well as certain charges they incurred on products in the first month of service despite promises of a free 30-day trial period.

"In other instances, Citibank failed to inform consumers that they would be billed after the 30-day trial period if they did not cancel the product. Citibank also told some consumers they could avoid the fee by paying their balance in full by the due date," the CFPB said. "But to avoid the fee, consumers had to pay off the balance before the end of their billing cycle so that there would be no balance on the account when billing statements went out."

Citibank was cited for enrolling consumers in certain products even when they were not eligible to receive the product's benefits, nor were they informed they were ineligible. Citibank's subsidiary, Citicorp Credit Services was specifically charged with illegally enrolling consumers into certain products by using deceptive questions and billing processes.

"That company used leading questions to obtain billing authorizations from consumers for certain add-on products," the CFPB said. "It also enrolled some consumers without any billing authorization or by construing ambiguous responses during calls for a billing authorization as permission for enrollment, and then charged consumers for the products."

Billing was also a problem, according to regulators. The company was charged with billing consumers for credit-monitoring products without having the necessary authorization from the consumer and in other cases, not providing the full benefits thereafter. These billing activities occurred as early as 2000 through 2013 and affected more than 2 million consumer accounts, the CFPB said.

Citibank also faced another citation for charging a $14.95 fee to consumers who were paying for a delinquent retailer-affiliated card by phone using a checking account. The CFPB claims Citibank "misrepresented" this fee by saying it was a "processing" fee rather than that it was a charge to expedite the payment as a same-day transaction.

"Citibank also failed to disclose other no-cost payment alternatives," the CFPB said. "The company charged the fee even though it was rarely in the consumer's interest to pay the fee so that the payment would post on the same day."

Citibank and its subsidiaries have been ordered to pay $700 million in restitution to nearly 9 million affected consumers and a $35 million penalty to the CFPB. The OCC separately required Citibank and an affiliate to pay a $35 million money penalty for billing consumers for identity theft protection and a debt cancellation product in which consumers were not receiving the full benefits. Citibank has agreed to the stipulations in both orders without admitting or denying wrongdoing.

In a statement, Citibank said it began remediation to consumers in 2013 and no longer offers the products cited by regulators.

"Citi cooperated fully with the CFPB and OCC and has taken extensive steps to address each issue that affected customers. Citi previously discontinued sales of the products included in the agreements, which include credit monitoring and debt protection products and wallet protection services, and no longer charges expedited pay-by-phone fees," the company said. "Customer remediation has been underway since 2013, and Citi will continue to notify and refund affected customers. Affected customers will automatically receive a statement credit or check and those no longer with Citi who are eligible will be mailed a check."

The OCC also ordered the bank to improve its third-party vendor oversight and develop a risk management program as well as a consumer compliance internal audit program related to add-on products, among other oversight duties. Citibank said it has already taken extensive steps to strengthen its internal processes and controls.

"Citi continually reviews our policies, processes, systems and controls so that all of our products and practices meet or exceed the high standards that both we expect and our customers deserve," the company said.

The CFPB and OCC filed the orders separately partly because each has jurisdiction of different laws in the area around deceptive marketing and selling of certain financial products. The CFPB also chose to file its action through an internal administrative process so the case will be handled by an internal administrative law judge. 

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