PIRATES OF THE CREDIT SEA – Part 6: Default under the Citibank credit card contract

This final article in this series discusses the seven conditions of default under the Citibank / ATT Universal card agreement.

It also expresses my opinions about contractual relationships in general and about the Citibank / AT&T Universal credit card contract in particular.

For a summary of the overall situation, go to Part #1: My Treasure Is Taken!

For an article about your rights to correct billing statements that you receive from financial institutions, go to Part #2: What are my rights?

For an article summarizing how Citibank “managed” my initial written appeal go to Part #3: I want my treasure back!! (Please)

For an article about Citibank’s credit card customer service stonewalling see: Part 4: Hitting the Citibank Stone Wall in Polite Conversation

For an article about having to escalate my appeal at Citibank see: Part 5: I write to the President of Citibank Customer Service

[NOTE: I have finally recovered all my treasure from Citibank. I have received a refund of well over $2,000. Yet, I still have never received any reasonable explanation or justification for this whole mess. My previous articles in this series have detailed this time-consuming ordeal. Recently, I received a telephone call from the office of the President of Citibank Customer Service. This was the first actual “service” that I have received from Citibank during this whole saga. After some discussion, I was told that all default interest charges would be reversed and everything would be reset to the original low interest rate. Even then, Citibank still could not tell me why automated payments had not been processed or why my account was placed into default, after being a very reliable AT&T Universal credit card customer for 15 years. The polite Citibank representative whom I spoke to asserted that Citibank still had the contractual right to put my account into default, even though the minimum monthly payment had been made by check on time and had been recorded by Citibank in October 2006. In essence, I really had no contractual “right” to receive my money back. I was being granted mercy. I deposited the Citibank check that refunded my treasure. I will remember this incident with Citibank for many years.]

With a couple of decades of experience in corporate development, technology licensing, and strategic relationship management in the computer industry, let me state some personal observations about contractual “default” and the Citibank credit card contract.

Default is one of the worst situations in any contractual relationship. Default could begin the death process of a business relationship. On the other hand, this contractual death process might be reversed, if both parties are willing and able to meet their contractual commitments and to work together toward an equitable solution. If a case proves to be more difficult, having the support of a legal professional can also be beneficial.

If you wish to fulfill your obligations in good faith under any contract, you will try very hard to avoid being the party that causes any contract to go into default. You will cure the breach of the contract that causes the default, as quickly as you can. You will work in good faith with the other party to get the contract out of default, so that the business relationship can continue forward and not die.

Truly profitable business relationships are long-term relationships of repeated transactions between willing and satisfied parties. Defaults kill business relationships, and defaults kill profits (normally). However, when one party feels that they have enough economic or legal power in a business relationship to benefit from contractual default, then contractual default could change from a situation of last resort into a normal business practice. It may even be welcomed by the party that has the economic or legal advantage. It could even become part of the strategic business plan. I am very concerned that this is what has happened with credit card contracts in an environment of very weak consumer protections.

Default under the Citibank/AT&T Universal credit card contract

The Citibank/AT&T Universal credit card contract lists the conditions of contractual default. All of these default conditions are focused on failures on the part of the customer and none relate to failures on the part of Citibank. At the end of the default clause, the contract states that Citibank “may close the account and demand immediate payment of the total balance.” This is serious business, and it should be. Citibank took the risk and loaned the money. They should have reasonable protective rights to get their principal back with reasonable interest.

The contract then goes on to discuss collection costs, legal fees, mandatory arbitration, and adverse credit reports. I am relieved not to find a debtors prison or indentured servitude clause in this contract. If you borrow money and go into default under this contract, it looks like things can get very tough, if you did not have the money to pay off the full balance. Personally, I was prepared and had the money to escape from Citibank.

Given the severity of being in default, you would think that Citibank would have moved pretty quickly to recover its money from such a deadbeat like me and would have made a “demand (for) immediate payment of the total balance,” as this contract asserts Citibank has a right (but not the obligation) to do.

However, for six months after I defaulted and did not notice that the interest rate had jumped from 2.99% to 32.31% on my statements, Citibank did nothing except charge me higher minimum payments at a default interest rate that was over ten times higher than their promotional rate. Apparently, I was not such a deadbeat credit risk that they felt they had to call the full loan balance and end the business relationship just yet. When I finally woke up to the situation, however, I did feel that an immediate payoff and an end to this predatory business relationship was appropriate.

Furthermore and oddly enough, even though I was yet another of Citibank’s deadbeat customers in default, it did not seem important enough to Citibank to provide any written notice to me that I was actually in default. There were no notices of default on my monthly statements and no separate letter of default. Gosh, if I was administering a contract and the other party defaulted, I would certainly let them know. “Pay up matey or we be clapin’ ya in irons and tossin’ you down into the hold with the rest of them deadbeat rats!”

On the other hand, why bother to tell me that I was in default? I still have not found the clause in this agreement that tells me what I need to do to “cure” my default and restore myself to good standing under the contract. Apparently, once you are in default, you have no contractual right to a cure and restoration of more favorable terms. (Yes, of course you can enter into mandatory arbitration, which I never recall having agreed to. You also have a right apparently to file a claim in small claims court, but only if the matter is individual and not part of a class-action law suit.)

In practice, some people can and do succeed in achieving a cure of their default by calling Citibank customer service and asking for mercy.

In my case during a telephone call, Deckhand Moe, a nice Citibank customer service person, restored the 2.99% interest rate and refunded (only) two months of default interest charges. Apparently, the punishment for default meted out to me was to lose the other four months of default interest rate charges which fell outside the protections of the Fair Credit Billing Act. Magically, I was no longer in default with Citibank. I found nothing in the contract about this mercy method of curing a default. Immediately thereafter, however, with the aid of a wire transfer and no magic, I implemented my own cure for my alleged contractual default and paid off my Citibank balance in full.

If you search the web, you will find many cases where Citibank credit card customers in default say that they have begged Citibank customer service and its executives for mercy and apparently have found none.

Without any contractual right of cure and any stated conditions that I could meet to restore my prior rights under this contract, I humbly believe that some aspects of this legal agreement have a strong odor of economic feudalism.

If one cannot inspire Citibank’s mercy and one cannot pay one’s debts in full, then it appears that many must enter situations of very long-term financial servitude. You are not bound to the land and lord, as a serf. Instead, you are bound to the Citibank contract. “My Lord, if you could only find it in your heart to be merciful to my family. I am but a poor wretch. I will try to repay you, Sir, but 32.31% interest leaves nothing left even for a meager gruel for my children. Oh, please have mercy, Sir!”

These are the seven stated ways that you can default on this Citibank/AT&T Universal credit card contract:

1) fail to pay the minimum payment due on time (Nope. Not me. My check was posted for the minimum due 14 days before the due date on the fateful month of October 2006, when I supposedly defaulted on this contract.)

2) fail to make payment to any other creditor on time (Nope. I pay all my bills on time. I have done so for the almost 40 years of my adulthood.)

3) file for bankruptcy (Nope. Never have gone through any form of personal bankruptcy.)

4) exceed my credit limit (Nope. Plenty of spare headroom on my credit account limits.)

5) pay by check that bounces (Nope. My check cleared on time.)

6) “pay by automatic debit that is returned unpaid” (Here is the default rub. See below, and see previous articles in this series.)

7) default on any other card agreement with Citibank (Nope. My business credit cards with Citibank are not in default.)

So, it seems like we need to turn over default rock #6 to see whether I really was in default with my account. I don’t really think that I was. I paid the minimum payment due on time in October 2006. Shouldn’t that be enough for Citibank? Apparently not. The default clause begins by referring to the Minimum Payment Due, which was paid already in October 2006. Can a duplicative automated payment attempt trigger default? Should default be triggered, when Citibank had four months to succeed with any automated payment using valid account information?

Contracts always have small print. Citibank wrote this one, not me, and it appears to be a wee bit lopsided toward Citibank’s interests and away from mine.

I fully believe that Citibank has the right to repayment of its loan principal with reasonable interest. I believe that Citibank has the right to recover its money in situations of genuine default. Credit relationships are important to the U.S. and the world, and nobody would be in the business, if they could not earn a reasonable profit commensurate with the risks. However, I really do object to being slimed in any business relationship.

The customer deck of the Citibank credit card ship is awfully slippery. In my experience, it can be hard for a customer to remain standing and fulfill his obligations. If there really were significant legal consumer protections in place, perhaps I would have received some notice about this. From my perspective, it would be a stretch to call the treatment I have received from Citibank “customer service.” With Citibank, I should have worn cleats and pads and had my shields up. Or, better, I should have not done business with them to start with. Yet, I was a fifteen year “charter member” of the AT&T Universal card.

I still have a copy of Citibank’s original 2006 solicitation for this 2.99% loan offer, that I had read carefully and had highlighted some of the key terms.

This offer letter also has my handwritten notes. In essence the letter says, come hither, you can have a 2.99% loan for 17 months. Come hither … the first sentence of the letter is: “Your AT&T Universal Cash Rewards Card is the credit card that you can rely on for providing you with offers that matter most to you, and as a responsible lender we want you to make the best choice possible.”

ARRRRRG, ME HEARTIES — CITIBANK — “RESPONSIBLE LENDER” — ME THINKS THAT MIGHT BE A BIT O’ THE PARROT DROPPINGS — NOW JUST WHERE DID ME TREASURE SAIL OFF TO???? — BLIMEY, MAYBE THERE WERE BETTER CHOICES THAN CITIBANK, AFTER ALL!!

To conclude, if you want to find a bit o’ contrast between what Citibank does and what they say they do, just take a look at the various corporate governance documents on Citigroup’s main corporate headquarters website. In particular, the “Code of Conduct” document contains a “Fair Treatment” of customers and external constituencies section on page 8.

This paragraph quotes Citigroup’s fair treatment guidance to all employees in all subsidiaries, presumably including Citibank’s credit card operations:

“Citigroup is committed to dealing fairly with its customers, suppliers, competitors and employees. No person may take unfair advantage of anyone through manipulation, concealment, abuse of confidential information, misrepresentation of material facts or other unfair dealing practice. Consumer applications for loans must be treated consistently with Citigroup’s fair lending policy and U.S. fair lending standards, which mandate fair, equitable and consumer-friendly treatment. Many countries have “fair lending” or “fair access” laws that prohibit discrimination. We live within the letter of these laws and regulations, and also embrace their spirit and intent.”

Have I really have received “fair treatment” from Citibank under the standards of U.S. laws? If so, this only indicates to me that both the letter and spirit of the consumer protection laws of the United States related to credit card companies need some very dramatic improvement for consumers.

If it took this much work for me to get my treasure back, I truly pity the unfortunate Citibank credit card customers who get trapped and cannot get away.

Some have stated their personal distress at various places on the web. And, yet they are just the vocal tip of the iceberg. Many, many others suffer without a voice. If you cannot get satisfaction through your own efforts and the financial amount is significant to you, you might need a lawyer. If you do, you need an experienced legal specialist in debt, credit card, and bankruptcy affairs. Consider a bankruptcy attorney or search for a similar professional wherever you live. Remember that the credit card companies are exploiting the very weak state banking laws of certain states that, in effect, are exported to your state and take precedence over your state’s laws and consumer protections. Your attorney should have experience and knowledge of these subjects.