Citibank Charged With $8M Fines Over Debt Collections

Mar 25, 2016

The Consumer Financial Protection Bureau (CFPB) has recently charged Citigroup Inc. (Citi), an American multinational investment banking and financial services corporation, with fines and restitution.

According to Richard Cordray, CFPB Director, the bureau is currently developing new rules for the debt collection industry.

The fine ($8 million) and restitution were imposed based on the following facts. The company was supposed to have been selling credit card debt with inflated interest rate, without sending payments made by consumers to debt buyers.

The CFPB ordered Citibank Inc. to give consumers a refund of $11 million, according to a New Jersey state court order. Also, Citi was ordered to stop collecting another $34 million in credit card debts from 7.000 consumers.

“Solomon & Solomon” in Albany, NY, and “Faloni & Associates” in Fairfield, NJ, 2 debt collection firms that had worked for Citibank, were also involved in the case. They were ordered to pay civil penalties because they’d made changes to the dates and amounts of debt owed by consumers.

With this in mind, debt collection merchants should consider choosing only trustworthy processors like EMB. As debt collection agents and agencies are considered high risk, EMB is the ideal choice for your collection agency merchant account. The unstable nature of the debt collection market is not a problem for EMB, #1 provider of merchant accounts for the collection agency industry.

The reality is that Citibank had overstated the annual percentage rate of charge (APR) on accounts sold to 16 debt buyers. There were cases when the APR claimed by Citibank accounted for 29%, but it was zero, in fact. The wrong information was then used by the debt buyers to collect $4.9 million from consumers.

The CFPB ordered Citi to send $4.9 million as a refund to 2.100 consumers who paid their debt between February 1, 2010 – November 14, 2013.

Also, the New York bank must pay a $3 million penalty to the CFPB’s civil penalty fund.

What is more, Citibank delayed paying debt buyers almost $1 million received from 14.000 customers to. This was violating the Dodd-Frank Act.

In addition, Citibank cannot sell any debts without providing documentation and verification. Consumers must receive Citibank information about the debt from Citi. The information must include such details as the name of the credit agreement, original creditor, and the account statements.

The CFPB ordered the New York bank to add provisions to the contract with debt sellers, which wouldn’t allow buyers to resell the debt.

Finally, the bureau ordered 2 debt collection law firms to pay civil penalties as they had altered affidavits and the debt amount allegedly owed. This was violating the Fair Debt Collection Practices Act. As a result, “Solomon & Solomon” and “Faloni & Associates” must pay $65.000 and $15.000 correspondingly.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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