Citibank Caught Thieving Again
August 26, 2008
by William P. Meyers

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Citibank, or Citigroup as the parent company is known, just plain stole money from its credit card customers in California using a computerized theft system that must be the envy of hacker gangs. They have agreed with the Attorney General of California to give as-yet undetermined millions of dollars back to the victims.

This criminal adventure is just the latest in a long series of crimes committed by Citibank during its history. In many cases transactions that would be crimes were legalized by bribing elected officials to write laws to Citibank's liking. See my Citibank page for an outline of this criminal history.

According to a Press Release from the California Office of the Attorney General Edmund G. Brown, Jr., Citibank used a sophisticated computer program for the thefts, called a "credit sweep process." For a variety of reasons a credit card account might show a temporary positive balance, for instance if a customer paid their monthly bill twice, or returned a purchased item for credit. The positive balances were detected by a computer program that automatically disappeared them from the victim's statements. The program was especially designed to target consumers who were deceased, had sought bankruptcy protection, or were involved in litigation.

The release indicated that "Citi" also stole from customers in the other 49 states in the United States of America, but it appears that the settlement only affects California, and that the the governments of the other states either can't be bothered or can be bribed.

A whistleblower who discovered the fraud was fired by Citibank. A Citibank executive said "Stealing from our customers is a business decision, not a legal decision."

The California investigation was launched in 2005. The Citibank actions violated the California False Claims Act.

The settlement [See State of California ex rel Mellon v. Citigroup Final Judgment] provided for a permanent injunction against credit sweeps in California, refunds for the victims including 10% interest, a penalty of $3.5 million to be paid to the State of California, and an independent audit of the process.

While I can applaud Jerry Brown for this action, in general the astonishingly corrupt Legislature of the State of California has done a terrible job regulating credit card companies. In fact, credit cards were deregulated (I think back in the 1980's). Back in the good old days the state set maximum interest rates and late penalties. The industry argued that if it were deregulated interest rates and penalties would drop due to competition. An even stronger argument was a flood of money to the campaign funds of politicians, Republican and Democrat alike. Of course after deregulation late penalties and interest rates jumped and never came down.

Computer programmers from corporate fraudsters like Citibank talk of all kinds of tricks used to milk the public. The simplest is sending out bills after the first of each month. Many customers pay bills once a month, coinciding with when rent is due. The credit card bill arrives after that, is put in a pile, and is not paid until the end of the month, by which time a penalty is added to it. Billions of dollars have been stolen that way.

According to consumers, banks even simply allowed physical payments to ripen in a warehouse for a week or so before processing them. Most people pay their bills barely on time, so the extra week made the payment late and added a penalty. Complaining customers were told the fault must be with the U.S. Postal Service. Another scam is having payments post the day after they are received due to arbitrary deadlines that make no sense in this computerized world [ See Why Your Credit Card Payment Posts Late].

California - and the rest of the nation - needs real banking and credit card reform. Don't expect to get it as long as you keep voting for the Democratic and Republican Party machines' candidates.

Eight Things a Credit Card User Should Know [PBS]