Citi to refund $5 million to cardholders for illegal collections

Bank sold debt containing false information to collectors


Citi to refund $5 million to cardholders for illegal collections
Citi to refund $5 million to cardholders for illegal collections

About 2,100 Citi cardholders will get $5 million back -- an average of $2,380 each -- for illegal debt collection practices, the U.S. Consumer Financial Protection Bureau announced Tuesday.

Citi inflated the interest rate on 128,809 accounts that it sold to debt buyers between 2010 and 2013, the CFPB said, sometimes tagging a 0-percent interest account with an APR of 29 percent.

About 2,100 cardholders are in line to receive refunds, which apply to payments they made from Feb. 1, 2010 to Nov. 14, 2013, according to court papers. Under the settlement, Citi is supposed to contact the eligible cardholders and send them refunds. Cardholders who paid interest that was more than 1 percentage point higher than their actual APR are eligible for refunds.

The bank also failed to promptly forward payments from about 14,000 cardholders to the buyers of their debt, sometimes holding onto the money for more than a year.

Citi will pay a $3 million fine for the practices, which violated the Dodd-Frank Act, the agency said.

"Citibank sent inaccurate information to buyers when it sold off credit card debt," CFPB Director Richard Cordray said in a statement, calling the practices "slipshod."

The CFPB also ordered the bank and two law firms to comply with an earlier New Jersey state court ruling that ordered Citi to refund $11 million to consumers and forgo collecting $34 million from nearly 7,000 consumers. 

The CFPB did not fine Citi in that crackdown, which involved law firms changing dates and dollar amounts on sworn affidavits supplied by the bank. Citi dropped collection lawsuits involving the affected accounts and completed payment of the amounts ordered by the court, the CFPB said. The CFPB fined Solomon & Solomon P.C. $65,000 and Faloni & Associates LLC $15,000 for altering affidavits.

Citi issued a response that characterized the debt collection problems as water under the bridge. “We are pleased to resolve these legacy issues, which impacted a small percentage of customers in the U.S,” the emailed statement said. Citi in court papers agreed to pay fines and refunds without admitting wrongdoing.

Tip of the iceberg
To consumers, however, the conduct depicted in the CFPB orders gives a discomforting close-up of the abuses that can be connected to sold-off debt. Such debt, which is sold in batches to debt buyers for pennies on each dollar owed, have been blamed for a raft of debt collection problems. The consumer protection bureau's proposed new rules for debt collection focus extensively on how sold debt is collected. Chase Bank has faced regulatory sanctions involving sold debt, as have some large debt buyers have also faced regulatory crackdowns over abuses rooted in sold-off debt.

During the 2010-2013 period, Citi sold accounts with overstated APRs to about 16 debt buyers, according to the CFPB's order. Citi provided buyers with an electronic file containing consumers' names, Social Security numbers and the amounts of their debts, including the supposed APRs. Citi didn't check account documents to verify the APR information, and did not provide the documents to buyers except on request. Buyers faced a $10 charge per document after a certain number of requests, the CFPB said.

Until August 2013, Citi did not have a policy of notifying cardholders when it sold their accounts. When it received payments on sold accounts, Citi's delays in forwarding the payments to the debt buyers resulted in undue collection actions on consumers and inaccurate entries on their credit reports, the CFPB said in court papers.

What to do if you think you're eligible for refund
Under the redress plan laid out in court documents, Citi must identify all consumers who are eligible for refund of excess interest payments and mail them a check along with a restitution notification letter. The mailings are to go to consumers' last known address via first class mail, address correction requested.

If you made payments to a collector for Citicard debt between Feb. 1, 2010 and Nov. 14, 2013, and the APR was more than 1 percent of what was in your credit card agreement, you may be eligible for a refund. If you believe you are eligible for a refund and fail to receive one, you may contact Citi customer service, the CFPB said. If that fails, you may file a complaint with the consumer bureau. The CFPB accepts complaints on its website or by phone at 855-411-2372.

See related: Robo-signed collection cases under fire

Published: February 23, 2016

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Updated: 10-28-2016

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