Citi will refund $700 million for deceptive marketing of credit card add-on products

Citi will refund roughly $700 million to 7 million consumers who paid for add-on credit card services like debt cancellation from 2003-2013 and pay a $35 million civil penalty for deceiving consumers with sale pitches, federal regulators announced today.

Citibank and its affiliates intentionally confused consumers, tricking them into purchasing coverage that promised to eliminate credit card debt under certain circumstances, such as job loss, according to the Consumer Financial Protection Bureau.

“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.”

Citibank also sold credit monitoring products, and collected monthly fees even when consumers weren’t actually enrolled in the product, the agency said.

The big-ticket, brand-name announcement comes from the CFPB on the day the agency celebrates its fourth anniversary. The CFPB has targeted several other big-name banks for similar sales of credit card add-on products, forcing Bank of America to pay $700 million last year and Chase to pay $309 million in 2013.

“We continue to uncover illegal credit card add-on practices that are costing unknowing consumers millions of dollars,” said CFPB Director Richard Cordray. “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 a statement, Citi said that it had previously discontinued the practices identified by the CFPB and began refunding consumers back in 2013.

“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 firm 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 list of allegations against Citi claim that the firm:

• Charged consumers for benefits they did not receive: Citibank charged consumers whose authorizations were not in order or who could not receive the credit monitoring or other benefits. The company continued to charge consumers for services they were not receiving, in some cases for the entire time the consumer had the product.
• Failed to provide product benefits: Consumers may have been under the impression that their credit was being monitored for fraud and identity theft, when, in fact, these services were either not being performed at all, or were only partially performed.
• Misrepresented cost and fees for coverage: In some cases, telemarketers misrepresented or did not inform the consumer about the cost of the products. In certain telemarketing scripts, Citibank instructed telemarketers to claim a blanket “free” 30-day trial period, when Citibank still charged consumers during the initial 30 days of membership. 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. 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.
• Misrepresented benefits of some products: For consumers who signed up for a credit-monitoring product, Citibank claimed the fraud alert service on credit card accounts would alert them of fraudulent purchases. In fact, the credit-monitoring product only provided alerts to changes in a consumer’s credit file maintained by major reporting companies, not at the transaction level. Citibank also misled consumers in telemarketing calls and in online marketing about the credit score benefit. It told consumers the credit score was generated from all the three major credit reporting companies, when in reality the score was generated by a third-party vendor.
• Used illegal practices in the enrollment process: During telemarketing calls, Citibank’s nonbank subsidiary, Citicorp Credit Services, Inc. (USA), used illegal practices to enroll consumers in these products. That company used leading questions to obtain billing authorizations from consumers for certain add-on products. 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.
• Misrepresented or omitted information about eligibility for coverage: In some instances, consumers disclosed information to Citibank indicating that they would be ineligible for certain benefits. However, Citibank failed to inform them that they would be ineligible to receive the product benefits and still enrolled them in the product.