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Updated on Tuesday, July 21, 2015
Today the Consumer Financial Protection Bureau (“CFPB”) announced a $35 million fine for Citibank. In addition, it has ordered the bank to reimburse $700 million to consumers who were victims of deceptive marketing, unfair billing practices and deceptive collection practices. In a consent order, the CFPB used aggressive language to describe the actions of Citibank. For years, Citibank sold insurance products, credit monitoring and fraud protection protects to their credit card and store card customers. Those products included AccountCare, Balance Protector, Credit Protector, Payment Safeguard, IdentityMonitor, DirectAlert, PrivacyGuard and Citi Credit Monitoring Services. The CFPB took issue with how these products were sold to consumers. Citibank was also charged with over-billing consumers and extracting excessive fees from consumers in collections. The client reimbursements are supposed to happen automatically. If you think you should have been reimbursed, you can complain directly to the CFPB via their website.
Add-on insurance products historically have been sold aggressively by call centers and, for store cards, at the checkout counter. The CFPB found example of misrepresentation by the sales agents. For example, customers were told that the first 30 days were free. However, they were still charged for the first 30 days. In another example, customers were told that they would not be charged if they paid their balance in full. However, the customers would have had to make payments before the statement is produced. If there was a statement balance, consumers would be charged.
For the fraud products, Citibank over-stated the benefits. Customers were told that the product would detect fraudulent purchases. However, the product only had access to bureau data. And bureau data only has balance data, not transactional data. Citibank was not monitoring transactions for fraud, although they made that claim in their advertising.
During the sales process, consumers often did not realize that they were enrolling in the program. And there were examples of consumers being enrolled even though they were not eligible for benefits. For example, some credit protection policies may not cover self-employed individuals. However, even though Citibank knew that cardholders were self-employed and ineligible for benefits, they were still sold the product.
For certain store card relationships, Citibank would offer “pay by phone.” There was a $14.95 fee to pay by phone. During the phone calls, the representatives did not make clear that the fee was to expedite the payment, and ensure it posted on the same day. Instead, the agents implied that the fee was charged for all phone payments. Many consumers paid the expedited payment fee when they didn’t need to make that payment.
Citi To Change Its Practices
Citibank will be reimbursing customers up to $700 million. $479 million will be given to customers who were the targets of deceptive marketing. $196 million will be paid to customers who were enrolled in credit monitoring services. And $23.8 million will be given to customers who paid excessive “pay by phone” fees. Citi is required to “conveniently repay consumers.” In other words, Citi cannot set up a process where consumers need to reach out. Instead, the burden is on Citi to reimburse its customers automatically. Some reimbursements have already happened, and more are on the way.
In addition, sales practices, fees and billing practices will be changing at Citi to ensure these breaches will not happen again.
Should We Ever Buy These Products?
Add-on products have generally been a bad deal for consumers. Call center agents typically receive large bonuses to sell the products. The value for consumers is usually low. And the objective for the bank is to sign up consumers into a recurring billing product. The chance of a consumer canceling or claiming is very low.
As a general rule, consumers should avoid buying insurance from providers of loans. If you need life insurance, you should shop around for term life insurance that covers all of your needs, not just your loan or credit card balance.
Credit monitoring is now basically a free service. Websites like CreditKarma, CreditSesame and Quizzle all offer free access to your credit reports. CreditKarma can help you set up basic fraud monitoring. There is no real reason to pay for this advice any longer. And if you want a better form of fraud protection, you should put a fraud block on your account. That is one of the best ways to ensure your account is not compromised. And if you want true transaction monitoring, you should sign up for alerts with each of your credit cards individually.
But there is an even simpler rule. If you are ever being sold insurance at the end of any purchase, you should probably avoid buying it. Insurance is great. But you should shop for it and find your best deal. And it should protect all of your needs. If you call customer service to make a payment, and then hear “for less than the cost of a Pepsi a day, you can protect your family,” you should probably just hang up.
Although these fines are steep, they are still much less punitive than equivalent fines of British banks in the UK. Not only did customers receive a refund, but the refund was compounded at an 8% interest rate annually. Although the $735 million will be painful to Citibank, management should feel lucky that British regulators didn’t set the fine.