The Consumer Financial Protection Bureau ordered Citibank and one of its subsidiaries to pay $700 million in relief to more than 8.8 million consumers for engaging in a string of illegal credit card practices, including deceptively marketing and billing for debt protection and credit monitoring services, and misrepresenting fees related to debt collection actions.

In all, the CFPB estimates seven million consumer accounts were affected by Citibank’s deceptive marketing, billing, and administration of debt protection and credit monitoring add-on products, while one of its subsidiaries deceptively charged expedited payment fees to nearly 1.8 million consumer accounts during collection calls.

According to the CFPB complaint [PDF], from at least 2003 through 2012, Citibank and its subsidiaries – Department Stores National Bank and Citicorp Credit Services, Inc. – allegedly used deceptive means to market and enroll consumers in five debt protection add-on products, four identity theft add-on services and one credit monitoring add-on product.

The debt protection products – AccountCare, Balance Protector, Credit Protection, Credit Protector, and Payment Safeguard – were advertised to account holders as allowing the cancellation of a consumer’s balance, or deferment of 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.

The identity theft add-ons, called IdentityMonitor, DirectAlert, PrivacyGuard, and Citi Credit Monitoring Services, offered credit-monitoring or credit-report-retrieval services, while another product called Watch-Guard Preferred, was advertised as a wallet-protection service that notified credit and debit card issuers if the consumers reported a card lost or stolen.

The CFPB alleges that Citi and its subsidiaries routinely marketed these products deceptively to consumers during telemarketing calls, online enrollment, point-of-sale application and enrollment at retailers or when already enrolled customers called to cancel products.

In some cases, the CFPB, alleges that telemarketers misrepresented or did not inform the consumer about the cost of the products. For example, in one telemarketing script cited by the CFPB, Citibank allegedly instructed employees to claim a blanket “free” 30-day trial period. However, Citibank still charged consumers during the initial 30 days of membership.

In other instances, Citibank allegedly failed to inform consumers that they would be billed after the 30-day trial period if they did not cancel the product.

The company also told some consumers they could avoid the fee by paying their balance in full by the due date. But it failed to specify that in order to avoid the fee, consumers must pay off the balance before the end of their billing cycle so that there would be no balance on the account when billing statements went out.

Customers who signed up for the credit-monitoring products were promised that they would be notified of any fraudulent purchases. However, the CFPB asserts that the product only provided alerts to changes in a consumer’s credit file maintained by major reporting companies, not at the transaction level.

Additionally, Citibank allegedly told customers the credit score used in the products was generated from all the three major credit reporting companies, when in reality the score was generated by a third-party vendor.

As for Citibank’s subsidiaries, the CFPB claims that Citicorp Credit Services, Inc., used leading questions to obtain billing authorizations from consumers for certain add-on products. It also enrolled some consumers without any billing authorization or by construing ambiguous responses during calls for a billing authorization as permission for enrollment, and then charged consumers for the products.

When it came to charging customers for these add-on products, the CFPB contends Citibank and its subsidiaries relied on illegal billing practices, ultimately affecting nearly 2.2 million customer accounts from at least 2000 through 2013.

In many instances, the CFPB claims, Citibank billed consumers for add-on products without actually having the authorization necessary to perform the credit-monitoring and credit-report-retrieval services.

Other times, the company and its vendors continuously charged account holders for services they were never eligible to receive in the first place or only partially received because of a lack of information in consumer reporting files.

In addition to deceptively marketing services and illegally billing customer accounts, Citibank and its subsidiaries allegedly engaged in deceptive collection practices when trying to obtain payment on delinquent retailer-affiliated credit cards.

According to the CFPB, Citibank offered consumers the option to make payment by phone using a checking account – for a $14.95 fee – so the payment would post to the account on the same day.

The Bureau alleges that when offering this method of payment, Citibank failed to disclose other non-fee options and misled consumers by referring to the $14.95 payment fee as a “processing” fee instead of simply a fee to allow payment.

As a result of the allegedly misleading and illegal credit card practices, the CFPB has ordered Citibank to provide $700 million in relief to affected account holders.

Of that redress, $479 million will go to the roughly 4.8 million consumer accounts impacted by deceptive marketing or retention practices. Approximately $196 million will be provided to about 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.

Finally, subsidiary 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.

In addition to consumer relief, Citibank must pay a $35 million penalty to the CFPB’s Civil Penalty Fund, as well as end its unfair billing practices and cease engaging in the deceptive marketing of add-on products.

CFPB Orders Citibank to Pay $700 Million in Consumer Relief for Illegal Credit Card Practices [CFPB]

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