Citigroup Inc (NYSE:C) Must Pay $700 Million for Its Sins: Here’s Why

Citi (NYSE:C))

Citigroup Inc consumer unit has been ordered by the United States Consumer Financial Protection Bureau (CFPB) to pay $700 million in consumer relief for deceptive credit card marketing practices. The CFP confirmed Tuesday about seven million customer accounts were affected by “deceptive marketing” gimmicks employed by Citibank.

Citi (NYSE:C))

What Exactly Did Citi do Wrong?

The CFPB concluded that Citibank misrepresented costs and fees and charged clients for services they did not even receive between the years 2003 and 2012. Moreover, one Citibank unit had been accused of “deceptively” charging about 1.8 million consumer accounts same-day payment fees while at the same time collecting payments.

According to CFPB documents, Citibank   labeled a $14.95 per account charge as a “processing fee.” It refrained from explaining that the fee was simply meant to make a quicker payments. Essentially, it utilized vague and misleading questions to get customers to sign up for credit card add-on products without authorization.

It was further revealed that Citibank informed its telemarketers to promote a “free” 30-day trial for customers. Unfortunately, the bank continued charging customers for debt protection coverage. In some cases, customers were enrolled and charged for services when they were ineligible for coverage.

Citibank had incorrectly claimed its fraud-alert services would contact customers of any type of fraudulent purchases. However, the credit card monitoring only gave alerts to revisions in client credit files maintained by the large credit reporting firms.

We continue to uncover illegal credit card add-on practices that are costing unknowing consumers millions of dollars,” said CFPB Director Richard Cordray in a statement. “In our four years (of existence), this is the tenth action we’ve taken against companies in this space for deceiving consumers.”

This year, the CFPB slapped a $125 million penalty on JPMorgan Chase & Co. (NYSE:JPM). In 2014, a $727 million fine was applied against Bank of America Corp (NYSE:BAC).

How Much Will Citi Pay Out?

Just exactly how much will Citibank   and its subsidiaries pay? First, the company will pay out about $700 million to customers: $479 million for 4.8 million consumer accounts affected by the practices and $196 million to 2.2 million consumer accounts that did not receive the credit-monitoring services.

Citibank and its subsidiaries will also dole out $35 million in civil penalties to the CFPB and another $35 million to the Office of the Comptroller of the Currency.

Department Stores National Bank has been ordered to pay $23.8 million in relief to about 1.8 million consumer accounts because they were charged “expedited payment fees.”

Customers who were affected by these actions will receive a statement of credit or check. Those who do not bank at Citi anymore will be eligible for a mailed check in 2016.

Citi said in a statement that it has fully cooperated with investigators. The company noted it started to take remunerative action dating back to 2013 for those wronged customers.  It added: “Citi is fully reserved for costs associated with the agreements.”

At the time of this writing, Citi shares were up 0.4 percent at $59.08 on the New York Stock Exchange.

Citi has had to protect its brand as of late with the .sucks domains being up for grabs.

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