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(SACRAMENTO) – Attorney General Bill Lockyer today announced that the nation's largest credit card issuer, Citibank, has agreed to assume responsibility for curbing the deceptive marketing practices of third-party vendors who use bank customer information.
"The multi-state settlement with Citibank is a model for telemarketing reform," Lockyer said. "For the first time, Citibank must ensure that companies using bank customer information are not engaging in misleading sales practices in which consumers are not aware they just bought products and services such as credit card loss protection, or that they are being charged for automatic renewals."
Citibank for years has contracted with telemarketing firms to sell a range of products and services to bank customers. In exchange for sharing customer lists, Citibank received a percentage of sales revenues.
Under the settlement with California, 26 other states and Puerto Rico, Citibank has agreed to ensure that companies using the bank's customer lists make specified changes to protect against misleading telemarketing and sales practices. Among other things, the vendors must be required to provide clear, conspicuous disclosures to consumers about what services or products are being sold. Citibank also must pay $1.6 million for attorneys fees, investigative costs, consumer education or other appropriate state uses.
"These vendors using bank customer information also will need to have consumers affirmatively agree to any purchase before their credit cards can be charged so there aren't surprise billings," Lockyer said.
The case results from a two-year investigation by the states into Citibank's customer information sharing practices in which the bank shared customer information that included encrypted data allowing the seller to impose charges on the credit card accounts of consumers. While Citibank was involved in the marketing programs of vendors, including script approval, the company failed to take responsibility for any misleading practices by the various vendors. The investigation was led by the attorneys general in California, New York, Illinois and Vermont.
The investigation found that solicitations often touted a "trial offer" which purportedly allowed customers to examine a product or service risk-free, then cancel at no cost or obligation. Despite the representation of no obligation trials, consumers were charged for the product unless the card holder affirmatively canceled within a specified number of days. This often was not made clear in the solicitation. Since vendors had the ability to charge credit cards based on the consumer information provided by Citbank, customers did not have to provide account information which would make clear a purchase was being made. Many of the sales programs also used automatic renewals which required a customer to place a call or write to cancel the service or purchase to avoid having his or her credit card charged again.
Under the agreement, Citicorp will include consumer protection policies in its contracts with telemarketing companies that include:
* Prohibitions against deceptive solicitations;
* Requiring the bank to review and approve all scripts and marketing materials used by vendors;
* Requiring a card holder to provide express authorization for purchases before charges can be placed on the customer's credit card account;
* Requiring a vendor who mentions Citicorp in scripts or solicitations to make clear that the bank is not affiliated with the vendor;
* Requiring vendors to substantiate all descriptions of products or services contained in marketing materials;
* Requiring vendors to refund the full purchase price if a customer cancels at any time within the first six months;
* Providing a written, plain language notice to customers of the upcoming charge for automatic renewal prior to charging any card holder's account for an automatic renewal.
* Requiring vendors to clearly and conspicuously disclose, among other things, a description of the product or service and any limitations that apply; the term of any trial offer; the fee; the method to cancel, including a toll-free number; information on automatic renewal; and the right of the cardholder to receive a full refund at any time within the first six months after purchase.
States involved in the settlement were: Arizona, California, Colorado, Florida, Kansas, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Vermont, Washington and Wisconsin.