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Citi refunding $700 million for credit card add-ons

Summary

Regulators ordered Citibank to refund $700 million to 8.8 million cardholders for debt protection, credit monitoring and same-day payment fees

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Nearly 9 million Citi credit card holders are receiving refunds totaling $700 million for card add-on products and bill-payment fees in one of the largest such refunds ordered by U.S. regulators.

“We continue to uncover illegal credit card add-on practices that are costing unknowing consumers millions of dollars,” Consumer Financial Protection Bureau Director Richard Cordray said in announcing the crackdown.

Citibank N.A. and store-card unit Department Stores National Bank will also pay fines totaling $70 million to the CFPB and the Office of the Comptroller of the Currency, a bank regulator.

From at least 2003 to 2012, Citi used misleading statements to get people to sign up for debt protection services, and charged for credit monitoring services it sometimes didn’t provide, the consumer protection bureau said. Citi also charged a $14.95 fee for same-day payment on delinquent acccounts, a service that most users didn’t need, according to the agency.

Refund-eligible customers will automatically receive a statement credit, or a check by mail if they no longer have an account. They should also receive a notification letter explaining how their refund — whether check or statement credit — was calculated.

Citi started making refunds in 2013, while under regulatory review, and has completed payments to 2 million of those eligible, the company said. It has stopped marketing the add-on products, and no longer charges same-day bill payment fees, according to a company statement.

In addition to making refunds, Citi must revise the amounts it has reported to credit bureaus to reflect the reduced debt on unpaid balances, according to the CFPB order. It must also revise claims it has filed in bankruptcy proceedings.

Costly deception: Refunds for credit card add-on marketing
Card issuer or company RefundsAnnouncedCustomers given refunds
Discover$200 million9/24/20123,500,000
Capital One$150 million7/18/20132,000,000
Chase$309 million9/19/20132,100,000
American Express$59.5 million12/4/2013335,000
Bank of America$727 million4/9/20142,900,000
Synchrony Bank$225 million6/19/2014749,000
U.S. Bank$47.9 million9/25/2014420,000
Affinion Group Holdings Inc.$6.8 million7/1/201573,000
Intersections Inc.$55,0007/1/2015Not available
Citibank$698.8 million7/21/20158,800,000
Comenity$61.5 million9/9/2015Not availalble
First National Bank of Omaha$27.75 million8/25/2015257,000
Totals$2.77 billionMore than 21 million

The CFPB order is the 10th regulatory crackdown for faulty credit card add-ons (Update: An 11th was added Sept. 9, 2015, when the FDIC ordered store-card issuer Comenity to refund $61.5 million; a 12th came Aug. 25, 2015, when First National Bank of Omaha was ordered to refund nearly $28 million). “We will remain on the lookout for similar conduct and will address it as we find it,” Cordray’s statement said.

Looking at the orders involving major card issuers, the Citi enforcement action brings the total refunds to $2.4 billion for 20.8 million card holders. By dollar amount, the Citi refund is the second-largest, after Bank of America’s $727 million restitution order. In terms of the number of refund-eligible cardholders, Citi’s repayment is by far the largest, with 8.8 million recipients.

The announcement came on the consumer protection bureau’s fifth anniversary since it was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and its fourth year in operation. In that time, the bureau has ordered refunds totaling $10.1 billion for 17 million consumers, including financial products other than credit cards. In addition, 1.7 million consumers received $178 million in refunds through the CFPB’s supervisory role over financial service companies, according to an agency statement.

“Especially proud of the work being done by CFPB — one of the great achievements of Dodd-Frank, our cop on the beat for consumers,” Sen. Charles E. Schumer said on Twitter.

According to CFPB filings, the breakdown of the refunds is:

  • $479 million for 4.8 million accounts for deceptive marketing. Confusing application materials for cards prompted people to sign up for debt protection coverage without knowing it, such as at retail point-of-sale terminals. Users of a 30-day free trial weren’t told they had to cancel the service to avoid fees — and some were charged for the initial 30 days anyway. People were enrolled in debt protection — which covers card payments in the event of job loss or other problems — despite being ineligible for benefits. Protection was sold under names including “AccountCare,” “Balance Protector,” “Credit Protection,” “Credit Protector” and “Payment Safeguard.”
  • $196 million to 2.2 million accounts for unfair billing practices. Consumers were charged for credit monitoring before their authorization to access credit records enabled the monitoring to begin. For some consumers, no monitoring was performed the entire time they were billed for the service.
  • $23.8 million to 1.8 million accounts for deceptive collection practices. Holders of store-affiliated cards with an overdue payment were offered the option of paying by phone same-day using their checking account for $14.95, although it was rarely in the consumer’s interest for the payment to be credited on a same-day basis.

Citi said it has created reserves to fund all of the payments required by the CFPB and OCC orders.

See related:U.S. Bank refunds $48 million for add-ons

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