Citibank Ordered to Pay for Illegal Debt Sales and Collection

Illegal debt sales and debt collection practices have landed Citibank in hot water with federal regulators. In two separate actions, regulators ordered the bank to fork over $16 million in consumer relief, pay $3 million to the government in penalties and forego $34 million in collections from approximately 7,000 customers.business man

The Consumer Financial Protection Bureau finalized two actions against Citibank – one involving sales of credit card debt with inflated interest rates and not timely forwarding consumer payments to debt buyers. The second involved both the bank and two of the debt collection law firms that together reportedly falsified court records in debt collection lawsuits. For the first action, the bank is ordered to pay $5 million in consumer relief, as well as a $3 million federal penalty. For the latter, it is ordered to refund $11 million to customers and stop its pending debt collection actions against involved consumers.

CFPB’s director said the bank gave its consumers bad information when it sold their credit card debt, and then relied on shady law firms to change up court records to appear in the bank’s favor. 

Our debt defense attorneys recognize Citibank isn’t the only large financial institution that has engaged in unethical or illegal practices. One need look no further than the housing crisis that lead to a housing market collapse and a tidal wave of foreclosures as millions were left underwater on their homes. All of that can be traced back largely to the banking practice of pushing subprime mortgages. Brokers and banks overlooked basic financial fundamentals and accuracy in home sales. They then bundled these high-risk mortgages and resold them to unsuspecting investors – including the federal government.

As the crisis unfolded and more people fell into debt, losing their homes and filing for bankruptcy, unlawful debt collection practices began to come to light.

The illegal debt collection practices at hand in this case firstly involve “charge-offs.” These are accounts banks consider not likely to be repaid, so they sell to a third-party debt buyer for a fraction of the original cost. The debt buyer then has authority to pursue collection of those balances.

In this case, Citibank reportedly broke the law for three years – from 2010 to 2013 – in providing APR information that was inflated on almost 130,000 charge-off credit card accounts sold to third-party debt buyers. It claimed the APR was 29 percent, when in fact it was 0 percent. Those companies than used that inflated interest figure in their attempts to collect on those debts. As a result, consumers paid about $5 million to debt buyers that they never actually owed in the first place. Furthermore, when some 14,000 customers did make payments on those accounts directly to Citibank, the company failed to immediately forward those payments to the debt buyers who actually owned them by then.

These actions were in direct violation of the Dodd-Frank Wall Street Reform Act.

In addition to the fine, the CFPB’s action requires Citibank to immediately stop selling any debt it’s not able to verify. It must also include certain protections in the debt sales actions it takes, including barring third party debt buyers from reselling that debt to yet another collector. Further, it has to give consumers basic information about their debts, such as the name of the original creditor and recent account statements.

With regard to the doctored affidavits, it is alleged the bank swore to the accuracy of the debts owed, and then two law firms retained by the bank changed the amount of debts owed and in some cases the dates of those affidavits. Citibank voluntarily asked the court to dismiss those cases handled by the firms (in New Jersey), but the bank still had to repay $11 million to consumers and stop collections on the remaining $34 million on those account balances.

This case highlights why it is so important to hire an experienced debt defense lawyer if you are battling creditors. When banks and debt collectors engage in illegal or unethical practices, you need someone on your side who knows the law and is ready to fight for you.

If you’re battling debt collection in Miami or the surrounding areas contact Jacobs|Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday at 5 p.m. on “Debt Warriors with Bruce Jacobs and Court Keeley,” discussing foreclosure topics that matter to YOU.

Additional Resources:

CFPB Orders Citibank to Provide Relief to Consumers for Illegal Debt Sales and Collection Practices, Feb. 23, 2017, CFPB

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