If you are a Citibank customer, or enjoy keeping up on the latest in banking news, the Citibank settlement may have come across your screen. If you didn’t know about any issues with Citibank, you are not alone. Essentially, Citibank failed to comply with credit card interest regulations and chose to self-report the issues it found during an audit. Let’s recap how we got here and what the outcome is for Citibank and their credit card program.
Back in 2010, the Bureau of Consumer Financial Protection (“the Bureau”) passed the Consumer Financial Protection Act of 2010 (“the Act”). The Act requires credit card issuers to reevaluate certain credit card holders and reduce their annual percentage rate (“APR”) under certain guidelines. Essentially, when a bank reviews a customer’s account and raises their interest rate for some reason (lower credit score, market conditions, etc.), the bank is then also required to periodically reevaluate those accounts to see if any of the factors have changed so the bank can lower the customer’s interest rate when appropriate. The banks are required to review these accounts AT LEAST every six months using “reasonable methodologies.”
Enter Citibank. Citibank reported itself for violating these regulations. The problem was discovered sometime in 2016 using a new auditing system. Citibank reported its audit findings to the Bureau in early 2017. The specific timeline is a bit of a mess, so it is best to look at it in bullet points.
- 2010 – early 2011: Citibank completely fails to implement the Act.
- February 2011: Citibank begins implementing the Act.
- February 2011 – August 2016: Citibank used an “ability-to-pay analysis” during this time that was flawed. Instead of evaluating the actual payments customers had, Citibank was doubling the payment amounts. This made the debt-to-income ratio appear higher, which made it harder for that customer to get a rate reduction.
- February 2011 – February 2014 (as well as certain accounts from August 2015 to August 2016): Citibank used customers’ FICO scores as a factor in determining its customers’ interest rates. While this is allowed, Citibank used the wrong method of calculating it and, in some cases, gave incorrect rates to customers.
- February 2011 – February 2014: Citibank incorrectly calculated new rates for existing customers by basing it on the current market rate instead of the original rate that the customer received when they signed up.
- August 2015 – August 2016: Citibank mixed up the types of factors it looked at to reevaluate customers who previously had their rates raised. The law says Citibank must use one set of factors or another. There are two sets of factors available for use. More information can be found in 12 C.F.R. §1026.59(a).
- February 2012 – August 2017: Citibank failed to reevaluate customers whose accounts were changed from fixed rate to variable rate. These customers ended up with variable rates that were higher than the fixed rate the customers originally had.
- 2011 – August 2017: Citibank failed to reevaluate customers whose rates had been increased multiple times prior to the Act.
- February 2014 – February 2017: Citibank used the wrong factors for some new accounts during this time. These factors were a violation of the Act.
What this all boils down to is Citibank failed to reduce the interest rates of around 1.75 million eligible accounts. This cost the affected customers over $335 million. After an administrative hearing, an order was issued for Citibank to follow so it could remedy the situation. The fact that Citibank self-reported and cooperated weighed in their favor. So while this order could have been harsher, this is good news overall.
Citibank was ordered to revamp its policies, have a system in place to audit these policies, and pay restitution to the affected customers. Any proposed plan will need to be approved by the Bureau, for which there is a tight deadline. Citibank was not ordered to pay any penalties. If you are an affected customer, be sure to keep an eye out for any mail regarding your account.