CFPB settles with Citi over APR errors

Agreement formalizes $335 million in refunds to credit card holders

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations.

CFPB gavel

The federal government’s consumer financial watchdog has signed a settlement with Citi over the bank’s February announcement that it had failed to cut interest rates on some credit card users in line with regulations.

The consent order was signed by Consumer Financial Protection Bureau Acting Director John “Mick” Mulvaney on June 28 and announced June 29.

It formalizes the payment of $335 million in refunds to card holders who were affected by the lapse from 2011 to 2017.

About 1.75 million Citi card accounts are due refunds, averaging $190 each.

The bank has begun issuing the payments, which will continue through the end of the year, a Citi representative said. Cardholders who were affected by the high APRs do not need to take action, as the company will automatically reimburse them.

The CFPB said Citi will either issue an account credit or a bank check to the affected cardholders.

Citi apologizes for years-long errors

In a corporate statement, Citi said it is “pleased to have resolved the matter with the bureau, and we reiterate our sincere apologies to our customers for not correcting these issues sooner.”

Citi said it estimated only about 10 percent of people who were hit with a higher rate since 2011 were affected by a tardy reduction in the rate. Most cardholders received reductions as called for in regulations, a savings to them of $3 billion, the bank said.

Under the Credit CARD Act, accounts that are hit with a higher interest rate because of market conditions, or because of changes in their creditworthiness, must be reviewed at least every six months, to see if the factors behind the rate increase have changed.

In its reviews, Citi sometimes determined that customers were eligible for a lower rate, but withheld the rate cut because their FICO credit score was below a certain threshold, the CFPB’s order states. In other cases, Citi limited the reduction in rates based on FICO scores. The practices violated CARD Act rules, the agency said.

In another example, Citi converted some accounts from fixed rates to variable rates that were higher than the fixed rate, and failed to reevaluate the accounts as the rule required.

And in some accounts that were hit by multiple rate increases, Citi only reevaluated increases to the penalty rate for breaching contract terms – such as missing a payment. It did not reevaluate reasons for other hikes, such as credit risk, until after the missed payment was “cured,” usually by a string of six on-time payments.

The CFPB said it did not issue a penalty on Citi beyond the refunds that are already in progress because the bank identified the problem itself, during a broad compliance review in 2016, and reported the lapse to regulators.

See related: Paid late? Six on-time payments can erase penalty rate

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Updated: 03-21-2019