Citi Avoids CFPB Fine for Overcharging Cardholders $335 Million

Citigroup Inc. got a break from the Consumer Financial Protection Bureau, avoiding a fine after failing to adjust rates for cardholders and costing them more than $335 million.

The agency, which is being reshaped under President Donald Trump, announced the decision Friday. It credited the lender for discovering the error, alerting regulators and setting out to repay borrowers before being ordered to do so. The lapses affected about 1.75 million accounts, according to a settlement posted on the CFPB’s website.

The deal contrasts with the $1 billion in penalties the CFPB and Office of the Comptroller of the Currency imposed on Wells Fargo & Co. in April for allegedly forcing unwanted insurance on customers who took out car loans and imposing inappropriate charges to lock in mortgage rates. The case built on a pattern of consumer abuses at the bank, which has vowed to root out problems and make customers whole.

The decision to refrain from fining Citigroup didn’t go unnoticed on Capitol Hill.

“When a bank cheats over a million customers out of more than $300 million, there should be a penalty, not an ‘attaboy’ for confessing,”  Sherrod Brown, the Senate Banking Committee’s top Democrat, said in a statement. “The CFPB should be aggressively fighting for consumers, not looking the other way when banks take advantage of customers.”

Citigroup had announced in February that it was repaying credit card customers. Its Citibank unit violated the Truth in Lending Act by failing to conduct reevaluations and reduce annual percentage rates for most of a decade, CFPB said in its statement. The agency also cited the New York-based bank for lacking reasonable written policies and procedures to ensure the reviews were done.

“We reiterate our sincere apologies to our customers for not correcting these issues sooner,” Citigroup said in a statement. The company said an internal review found problems with some credit-card accounts and regulators were promptly informed. Citigroup “found no evidence of employee misconduct.”

The 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 bi-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. The CFPB’s $500 million fine of Wells Fargo had raised questions on Wall Street about how the Trump administration would punish big banks for abusing consumers. That penalty was five times as large as the agency’s previous record — a $100 million penalty also against Wells Fargo for opening accounts without customers’ authorization.

After Reuters reported in December that the agency was reviewing whether to proceed with tens of millions in fines against Wells Fargo, Trump tweeted his ire with the bank’s “bad acts.” His administration would ease regulations, he said, “but make penalties severe when caught cheating!”