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Regulatory Sanctions

CFPB 'Defanged’ – Metes Out Lopsided Justice to Citibank

July 2, 2018

by Howard Haykin


So, for most of a decade - going back to 2009 - a Citigroup unit failed to comply with federal regulations pertaining to credit cards. Citibank, as it was permitted, increased interest rates charged on its credit card loans. However, Citibank then failed (as required) to review accounts every 6 months to assess whether the factors that prompted the increase have changed.


The Consumer Financial Protection Bureau  (“CFPB”) ordered Citibank to pay $335 million in restitution to nearly 2 million consumer credit card holders who incurred excessive interest charges because the bank failed to reevaluate its APR (“Annual Percentage Rate”). CFPB also ordered Citibank to correct its deficient WSPs and supervisory review practices.


Yet contrary to ‘standard operating procedures’, the CFPB opted not to fine Citibank “based on a number of factors, including that Citibank self-identified and self-reported the violations to the Bureau, and self-initiated remediation to affected consumers.” In February, Citigroup had announced that its Citibank unit had violated the Truth in Lending Act by failing to conduct reevaluations and reduce annual percentage rates for most of a decade, and that it was paying affected credit card customers.


By contrast, Wells Fargo was fined $1 billion by the CFPB and Office of the Comptroller of the Currency in April for allegedly forcing unwanted insurance on customers who took out car loans and imposing inappropriate charges to lock in mortgage rates.


The CFPB case focuses on Citigroup’s compliance with a portion of the so-called CARD Act, which was passed by Congress in 2009. Banks are allowed to periodically change the interest rates they charge on outstanding credit-card loans based on market conditions or a customer’s changing credit risk. But the CARD Act dictated that if banks previously increased the annual percentage rate on a card they must review the account every six months to assess whether the factors that prompted the increase have changed.


Citigroup’s internal investigation found the firm failed to properly scrutinize its customers’ accounts during semi-annual reviews, including by incorrectly examining a borrowers’ ability to pay. The bank also did not conduct rate reviews for some customers that had been converted from a fixed rate to a variable rate that subsequently exceeded the fixed rate. The lender also didn’t review some accounts with multiple previous rate increases.


[For further details of the case, click on … CFPB Consent Order.]