Citibank fined $3m over debt collections and sales

Citibank has to pay a $3m penalty and provide nearly $11m in consumer relief or refunds in a settlement over illegal debt sales and debt collection practices, as ordered by a federal consumer agency, as the bank broke the law by selling credit card debt with inflated interest rates and failed to forward consumer payments promptly to debt buyers. Furthermore, Citibank and two debt collection law firms falsified court records filed in debt collection cases in New Jersey state courts. Citibank said it was pleased to resolve the issues.

Kevin McCoy

USA TODAY

Citibank was ordered to pay a $3 million penalty and provide nearly $11 million in consumer relief or refunds in a settlement over illegal debt sales and debt collection practices, a federal consumer agency said Tuesday.

The New York-based bank broke the law by selling credit card debt with inflated interest rates and failing to forward consumer payments promptly to debt buyers, the Consumer Financial Protection Bureau said in a consent order.

Additionally, Citibank and two debt collection law firms that worked with the bank falsified court records filed in debt collection cases in New Jersey state courts, the CFPB said.

"Today's action provides redress to consumers who were victimized by slipshod practices," said CFPB Director Richard Cordray.

Citibank spokeswoman Jennifer Bombardier said the bank was "pleased to resolve these legacy issues, which impacted a small percentage of customers in the U.S."

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The debt sales in question involved portfolios of charged-off credit cart accounts that Citibank sold to buyers from 2010 to 2013. The debts, which the bank deemed unlikely to be repaid, were sold to debt buyers who tried to collect on the accounts. The CFPB said the bank:

Overstated the annual percentage rate in accounts sold to debt buyers. As a result, consumers paid approximately $4.89 million to debt buyers that used a rate that had been inflated by more than 1%.

Delayed forwarding to debt buyers nearly 14,000 consumer payments that totaled nearly $1 million. The delays subjected consumers to collection efforts after they had already paid off their accounts.

The CFPB settlement requires Citibank to repay the $4.89 million to victimized consumers and pay a $3 million fine to the consumer agency's civil penalty fund.

Separately, Citibank and two affiliates, Department Stores National Bank and CitFinancial Servicing, filed sworn statements that attested to the amounts allegedly owed by consumers. Citibank provided the affidavits to two debt-collection law firms, Faloni & Associates of Fairfield, N.J. and Solomon & Solomon, of Albany, N.Y. to collect credit card debt for the bank in New Jersey state courts.

However, the CFPB said the law firms altered affidavit dates, the amount of debt purportedly owed, or both, after the affidavits had been executed.

The consumer agency said Citibank must comply with a New Jersey state court order that required the bank to refund $11 million collected from consumers and halt collections on $34 million in additional debts. Citibank has already complied, the CFPB said.

The law firms collectively must pay $80,000 in penalties, the consumer agency said.