Citi is the latest megabank to pay out hundreds of millions in consumer relief and penalties for its marketing of so-called "add-on" services to its credit card customers. The more than $700 million in money to affected customers and $35 million in penalties comes on the fifth birthday of the Dodd-Frank Act, which created the agency that investigated and penalized Citi: the Consumer Financial Protection Bureau.
The agency, known as the CFPB, said the methods Citi used to market additional products to its credit card customers violated consumer protection rules around marketing and billing. These products included services that would cancel or delay payments, credit monitoring, and services that would notify customers of lost or stolen credit cards. The CFPB said that Citi often didn't disclose the true cost of these services or their exact benefits.
In one case, the CFPB said, Citi telemarketers told customers a product came with a free 30-day trial, but in fact charged customers during those first 30 days. In other instances, the CFPB says the telemarketers failed to inform users that they would be billed unless they proactively cancelled the service.
Citi also marketed a fraud detection and alert service that some telemarketers, the CFPB said, described to potential customers as a way to alert them to suspicious purchases but instead just noted changes in their credit file.
The services, "IdentityMonitor," was marketed as being generated by the three major credit reporting bureau, but the CFPB said, "another third-party vendor generated the score using as an input the consumer's credit files separately maintained at those credit reporting companies." It cost $12.95 a month. The CFPB also said that the telemarketers used "leading questions" and sometimes interpreted "ambiguous responses" to enroll customers in the program.
These practices went on from January 2009 to October 2012. The CFPB said that these improper marketing practices affected 4.8 million Citibank credit card customers. Combined, the billing and marketing practices that Citi has agreed to halt and provided relief for affected 8.8 million customers, which is a large chunk of Citi's 23.2 million open card accounts in North America.
The CFPB also detailed billing practices that ran afoul of its rules, including billing customers for credit monitoring without proper authorization to do so. Citi, the CFPB said, would bill customers for credit monitoring even when "one or more credit reporting companies could not process the authorization." This practice continued, in some form or another, from 2000 to 2013 for some of Citi's add-one products.
Citi said that it started customer remediation in 2013 and that it will give customers credits on their credit card statements or send checks.
"Citi cooperated fully with the CFPB and OCC and has taken extensive steps to address each issue that affected customers," the bank said in a statement. "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."
This is just the latest large CFPB action relating to the marketing of these "add-on" products.
Last year, the CFPB ordered Bank of America to pay $727 million in customer relief and $20 million in a penalty for similar practices. Chase had to pay $309 million in remediation for customers along with a $20 million penalty in 2013.
"We continue to uncover illegal credit card add-on practices that are costing unknowing consumers millions of dollars," CFPB Director Richard Cordray said in a statement. "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."
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at firstname.lastname@example.org.
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