As part of a larger Consumer Financial Protection Bureau (CFPB) enforcement action announced today against Citibank, N.A., Department Stores National Bank (a Citibank subsidiary) will pay $23.8 million for deceptively charging expedited payment fees to nearly 1.8 million consumer accounts during collection calls.

When collecting payment on delinquent retailer-affiliated credit card accounts, Citibank offered consumers the option to pay by phone using a checking account, so the payment would post to the account on the same day. There was a $14.95 fee associated with using this option. Citibank misled consumers by not disclosing the purpose of the expedited payment fee. It misrepresented the payment fee as a “processing” fee and did not explain that the fee was to post payment to the account on the same day it was made rather than a fee to allow payment. Citibank also failed to disclose other no-cost payment alternatives. The company charged the fee even though it was rarely in the consumer’s interest to pay the fee so that the payment would post on the same day.

The bulk of the enforcement action involved marketing and administration of credit card “add on” products and services. Citibank and its subsidiaries will pay $35 million in civil money penalties to the CFPB, and $700 million in total relief to consumers for the range of illegal practices identified. “We continue to uncover illegal credit card add-on practices that are costing unknowing consumers millions of dollars,” said CFPB Director Richard Cordray. “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.”

Citibank, N.A. is a national bank and insured depository institution. Citibank, as well as its subsidiaries Department Stores National Bank, and Citicorp Credit Services, Inc. (USA), marketed or offered credit card add-on products to consumers nationwide. From at least 2003 through 2012, Citibank actively marketed and enrolled consumers in five debt protection add-on products: “AccountCare,” “Balance Protector,” “Credit Protection,” “Credit Protector,” and “Payment Safeguard.” These products promised to cancel a consumer’s payment or balance, or defer the payment due date, if the consumer experienced certain hardships, such as job loss, disability, hospitalization, and certain life events, such as marriage or divorce. Citibank also marketed and sold other add-on products – “IdentityMonitor,” “DirectAlert,” “PrivacyGuard,” and “Citi Credit Monitoring Services” – that offered credit-monitoring or credit-report-retrieval services. Citibank also offered “Watch-Guard Preferred,” a wallet-protection service that notified credit and debit card issuers if the consumers reported a card lost or stolen.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices, or other violations of federal consumer financial law. This is the tenth action the Bureau has taken against companies for illegal practices in the marketing or administration of add-on products and services. The CFPB’s order requires that Citibank:

  • Provide $700 million in relief to roughly 8.8 million consumer accounts: Citibank must provide approximately $479 million in consumer relief to about 4.8 million consumer accounts as a result of the deceptive marketing or retention practices. It also must pay approximately $196 million to roughly 2.2 million consumer accounts that enrolled in the credit monitoring products and were charged while Citibank did not perform all of the promised services. Department Stores National Bank must provide about $23.8 million in consumer relief to almost 1.8 million consumer accounts for charging expedited payment fees on these delinquent accounts.
  • Conveniently repay consumers: Citibank will reimburse consumers affected by these practices. Consumers who are eligible for a refund do not have to take any action to get their refund. For the unfair billing practices related to the credit-monitoring products, Citibank has completed reimbursement to eligible consumers. For eligible consumers who have not received refunds yet, Citibank will initiate and complete a remediation process to reimburse those consumers.
  • End unfair billing practices: Consumers will no longer be billed for the credit monitoring products if they are not receiving the promised benefits.
  • Cease engaging in illegal practices: Citibank is prohibited from marketing all add-on products by telephone or at the point of sale, or engaging in attempts to retain consumers in these products by telephone, until it submits a compliance plan to the CFPB.
  • Pay a $35 million penalty: Citibank will make a $35 million penalty payment to the CFPB’s Civil Penalty Fund.

The CFPB is taking this action in coordination with the Office of the Comptroller of the Currency, which is separately ordering a $35 million civil penalty and restitution from Citibank and Department Stores National Bank for some of the same illegal practices.

Click here for the full text of the CFPB’s consent order.

insideARM Perspective

We have written in recent months about the risks of charging convenience fees, generally with respect to collection agencies – like in the case of Acosta v. Credit Bureau of Napa County - which suggests that collectors must be diligent when reviewing their client contracts with consumers. In the case of Citibank/Department Stores National Bank, we are seeing that the CFPB a) really likes clear disclosure and b) simply doesn’t like these fees no matter where they are in the chain. After all of the legal cases and now this enforcement action, convenience fees should be viewed as risky business.