Commentary

Citi Self-Reports Credit Card Gaffe And Will Give Back Millions

Citigroup admitted Friday that it had overcharged interest rates on 1.75 million credit card accounts from 2011 to 2017 and promised to refund an average $190 per customer in a payback that will total about $335 million. 

“Citi has semiannually reviewed U.S. credit card accounts that experienced an interest rate increase to identify those eligible for a rate reduction. A periodic internal review identified potential flaws in the methodology used to reevaluate interest rates on some credit card accounts,” Citi spokeswoman Liz Fogarty said in a statement.

“We sincerely apologize to our customers and are taking every action to provide refunds as quickly as possible,” Fogerty continues, Emily Flitter reports for the New York Times.

“Some of those accounts received smaller rate reductions than they should have, while others didn’t receive any reduction, the bank said. They included the bank’s regular credit cards, and co-branded cards that it has with merchants, and credit cards that can only be used at specific stores,” reports AnnaMaria Andriotis for the Wall Street Journal.

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“The bank said it delivered around 90% of the savings to customers as required by the interest-rate reduction requirement, resulting in more than $3 billion in savings,” she continues.

Citi claims it is the world's largest credit card issuer with more than 55 million accounts, $421 billion in annual purchase sales and $140 billion in average receivables.

“The lender ‘self-reported’ the issue to regulators including the Consumer Financial Protection Bureau, and by doing so should be able to mitigate penalties that may have arisen if regulators had discovered it first,” observes Bloomberg “Gadfly” columnist Gilliam Tan. 

“The issue is a setback for CEO Mike Corbat, who has tied some of bank’s future growth to expanding its credit card operation,” writes Bloomberg’s Dakin Campbell for the Chicago Tribune.

“Citigroup managed a total of 250 million accounts across its branded and retail-partner cards during the period in question. … The company will find customers who no longer have an account with the bank and make sure they receive their refund,” Campbell continues.

“The gaffe was uncovered as part of an internal review of the bank's methodology used to comply with the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which is overseen by the CFPB, as well as Regulation Z, which was implemented by the Federal Reserve. The Trump administration hasn't signaled its intention to reverse the CARD Act, which was signed into law by President Obama, but an ongoing shift in tenacity at the CFPB begs the question — what would have happened if Citi hadn't caught the mistake and chosen to remediate its customers?,” observes Bloomberg’s Tan.

“Analysts applaud the consumer protections of the CARD act that called for the reduction of rates,” writes Anna Bahney for CNNMoney.

“‘This provision of the CARD Act is a very important one,’ says Matt Schulz, CreditCards.com's senior industry analyst. ‘Before the CARD Act, someone who was hit with a penalty rate could be stuck with that super-high rate indefinitely. That shouldn't happen anymore. This refund won't have much of an impact on Citi, says Schulz.

“‘But for millions of Americans who live paycheck to paycheck, $190 matters,’ he says. ‘It may not change their lives, but they will certainly welcome it, especially since they shouldn't have had to part with it in the first place.’”

“The latest misstep has emerged almost three years since regulators ordered Citi to pay about $700 million to credit card customers who were duped into buying unnecessary add-on services,” Alistair Gray reminds us in Financial Times.

The [CFPB] found that 7 million accounts had been affected by ‘deceptive’ marketing. The add-on products promised relief if customers lost their jobs or encountered other hardships, but consumers were unaware they had signed up, or were misled about the cost.”

Too bad for Citibank that the add-on-services scheme unraveled under the previous administration. Given the current deregulatory state of the CFPB under budget director Mick Mulveney, Citibank nowadays might have been awarded a citation for innovative marketing.

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