Citi to Refund $330M to Credit Card Customers It Overcharged
nytimes.com
nytimes.com
Ladies and gentlemen, this is what regulations are all about. If not for a federal law forcing Citi to audit for this sort of thing they would either never have caught that they stole hundreds of millions of dollars, or more likely just never have reported it to anyone.
The next time some politician tells you regulations are always bad, only lead to more expenses for customers, remember this.
This seems like a really good one :)
More seriously, there are loads of bad regulations that were never good to begin with. Of course there would be. Motivations vary from do-gooding to incompetence to corruption, and if you believe this is impossible then I've got a bridge to sell you. And there are loads of bad regulations that are bad just because they are no longer necessary or relevant. Of course there would be.
Day 1: you create a regulation to stop some company from forcing employees to put their hands in a running wood chipper. Hurray, one predatory person has been stopped.
Day 2: A predator by hook and crook lobbies for a regulation to give them a competitive advantage.
Day 50: We've got 50 sincerely conceived regulations and 50 predatory regulations. Regulatory work has accelerated as the state has gotten better at it. Quite a few of the sincerely created regulations are meant to mitigate problems caused by the predatory ones! A call is sounded for deregulation.
Day 51: 35 regulations are thrown out based on lobbyist pressure and "grass root" campaigns.
Day 52: A company sends out a memo: "Due to the extra maintenance costs of hard stopping our wood chipper, we ask you now always leave it running. If it stalls on something the policy remains unchanged otherwise: pull it out."
It's an eternal arms race and I think the predators win almost always. We can't recognize or disarm them as faster than they can use our own methods and tools against us. As far as I can tell, oppose consolidation of power and work to never surrender leverage over yourself.
When it comes to protecting consumers, for example, regulations are generally not bad. Some regulations have been removed because some people want "efficiency" - and again, we have to pick the circumstance. Too much regulations (getting permits from 10 different agencies is slow) can drive up the cost (more application fees, higher construction cost due to delay), but too little or too lax can do harm. We all face this at work as software engineers...
[1]: https://wislawjournal.com/2010/11/03/regulations-show-courts...
Based solely on what's in the article, it wouldn't apply to businesses that don't carry inventory, notably services businesses.
> Every person shall obtain a closing-out license before conducting a closing-out sale
http://www.businessinsider.com/ridiculous-regulations-big-go...
Not saying I agree with all of the points in that article, but these strike me as a few harmful regulations:
> A U.S. District Court judge slapped a $500 fine on Massachusetts fisherman Robert J. Eldridge for untangling a giant whale from his nets and setting it free. So what was his crime? Well, according to the court, Eldridge was supposed to call state authorities and wait for them do it.
> The state of Texas now requires every new computer repair technician to obtain a private investigator's license. In order to receive a private investigator's license, an individual must either have a degree in criminal justice or must complete a three year apprenticeship with a licensed private investigator. If you are a computer repair technician that violates this law, or if you are a regular citizen that has a computer repaired by someone not in compliance with the law, you can be fined up to $4,000 and you can be put in jail for a year.
> The city of Philadelphia now requires all bloggers to purchase a $300 business privilege license. The city even went after one poor woman who had earned only $11 from her blog over the past two years.
1) http://www.capecodtimes.com/article/20091001/NEWS/910010317
> illegally untangling a humpback whale caught in his fishing gear.
> ... violating the federal Endangered Species Act and the Marine Mammal Protection Act.
Humpback whales were considered endangered species as the time. Certainly doesn't seem crazy to give extra care when handling endangered species
2) https://www.dps.texas.gov/RSD/PSB/Laws/psb_opin_sum.htm
> Computer repair or support services should be aware that if they offer to perform investigative services, such as assisting a customer with solving a computer-related crime, they must be licensed as investigators.
Sounds like the requirement applies to those who offer services that would be considered private investigation.
3) https://www.wired.com/2010/08/five-myths-about-philadelphias... provides a decent contemporaneous rebuttal.
Barbers and hairstylists are tested on proper hairstyling and sanitation technique.
This is one space where regulation to ensure people follow proper technique and sanitation protocols is needed.
Great discussion as always on econtalk: http://www.econtalk.org/archives/2018/01/dick_carpenter.html
Barring someone from working in a given industry, meanwhile, stops them from ever having the opportunity to commit the same crime again.
If a lawyer goes to jail for fraud, you don't want them to still be a lawyer when they get out, do you? This isn't like regular crimes (e.g. crimes of passion); fraud, blackmail, etc. are extremely deliberate and intellectual acts, and the type of person who decides to do them doesn't tend to suddenly happen upon any more scruples later on in life.
Of course, you could just say that we can make it part of the legal punishment of the criminal that they can never work in a given industry again (like we do for e.g. hackers). But is the government setting the terms of what is or isn't "work in that industry" better than actual industry-members setting those terms? Right now, people convicted of "hacking" aren't even allowed to own computers, for the most part. Doesn't seem like the government really knows what it's doing there.
Plus, allowing industries to self-regulate using guild licensing allows for enforcement of things besides strict legal criminal penalties. For example, the Society of Engineers can kick you out if you intentionally sign off on something as safe when you know it's not. That's not illegal—you'll go to jail if the building/bridge/etc. falls down; but if it doesn't, you're "safe" from criminal prosecution. But if the Society of Engineers finds out, then you're not a capital-E Engineer any more, and now all your signed-off-on documents will have to be rechecked.
2. Why wouldn’t I want them to still be a lawyer? I do not believe that everyone who commits a crime (and is caught, and convicted) is morally corrupt for the rest of her life.
My issue with police misconduct is that it is institutionalized and practically protected and normalized.
Is this the case with malpractice?
I’d think that the army-like bonding of police officers is a part of the reason for letting a lot of issues slide. Is there a similar phenomenon with lawyers?
What actually happened is that he put nets near the whales, and then left one of them entangled in the cut off nets (so, probably killed this member of an endangered species due to his recklessness).
http://www.capecodtimes.com/article/20091001/NEWS/910010317
> Texas
Again, the regulation here is that IF YOU ARE INVESTIGATING COMPUTERS, you need a PI license. If you're swapping video cards or reflowing solder or whatever, you don't.
> Philadelphia
There isn't any blogging tax. https://www.wired.com/2010/08/five-myths-about-philadelphias...
I've found that libertarian blogs which have these stories about oppressive regulation are invariably - 100% - lying. I've never found a true story about oppressive regulation. The reality is, no one is sitting around rubbing their hands together and thinking about all the ways to oppress the public for no reason.
Of course manufacturers need to apply for each product SKU individually and needs to resubmit every 3 years, and pay a fee of $150.00 per every 10 SKUs with a maximum of $1,500.00 with their application.
In response MA will cash their check and add a line item into a database (which they paid probably untold millions to build) and do absolutely no testing or certification of their own.
The typical solution is to simply stipulate that products must have gone through nationally accredited testing for XYZ and that the licensed plumber simply attests they have verified this is true for any fixtures they installed by checking a box on the permit form.
But you know, 100,000 product SKUs at $1.50 per SKU every 3 years is a pretty sweet money grab.
So much for ordering a $30 cold water fill from Amazon, I can pay Delta $100 for the same thing. Or, you know, install the Amazon version myself after the inspection is done.
Ditto for regs which technically make it illegal to install a light switch or new outlet with USB charging ports on in. Because, you know, screwing in 3 wires.
Ditto for regs on make-up air for over-range ventilation which doesn’t account for the actual tightness of the building envelope and type of vented gas fixtures which could conceivably backdraft. Wouldn’t want to make it too complex, let’s just cut big fucking baffled holes in the building envelope to “make-up” for every CFM over 400. I guess I can just disconnect the pressure switch after the inspector leaves.
Building codes are often quite sensible and important. But some states or even towns in particular turn it into a money grab.
Sigh, first world problems.
It's better said, that every regulation was enacted with good intentions... whether or not the result is good or bad is something entirely different.
http://braidingfreedom.com/braiding-initiative/standing-up-f...
You don't personally enact regulations... those who do are the ones with the good intentions. To them, the regulations seem sensible and net-good... no matter how misguided it might happen to be.
For example, a few years ago when Uber moved into Sarasota, the taxi companies complained. The city did something remarkable - they eliminated the regulations that Uber wasn't complying with. AFAIK, there really haven't been any negative consequences.
None at all? Not a single one? Did Uber pinky swear this?
It's natural to imagine that for such large systems, it's controlled by a little more than a few simple variable. But unfortunately, the levers and knobs that the population sees is something along the lines of low / high government and taxes.
I hear this line more, now, from people selling Bitcoin.
The next time some politician tells you regulations are always bad
Regulations timed to not start until after the Executive leaves office shouldn't be allowed in the first place.
you can't just enact regulations that take place immediately
Lets get that number and compare.
Seems difficult to know the benefit of such regulation without hindsight.
Secondly, businesses face market pressures to provide low cost to customers (isn't that the whole argument for the free market?) therefore passing the cost to the customer should be weighed against other potential inefficiencies -- they might even have to take a smaller cut of profit!
Funny how so many people can never justify the cost of doing business when it comes to protecting consumers.
See: Equifax data breach costs shouldered by the American public who have no resource provided by regulation
You say that without regulation you wouldn't have a recourse to get your money back on bad behavior from private companies, but if a regulation harms you economically, you will never get your money back anyway. Regulation does not give you a recourse to get your money back. In fact, even worse. The state can never make amends on its mistakes.
I don't care if law enforcement is more expensive than just absorbing the cost of crimes. I want the rule of law enforced, even if it's more expensive.
I, maybe like you, suspect that he wants others to follow the laws he wants, which is an entirely different proposition.
Don’t want the law enforced? Change the law.
Yes, the law should be changed, but not because drugs aren't bad. But because the high costs of enforcement (direct and indirect) have been worse than the lower costs of people being free to get high.
By your logic, we should continue to ignore all those costs because drugs are still a negative to society and the moral law must be enforced no matter the enforcement cost.
It's not a fair comparison. The purpose of regulation in this case is to protect consumers of bank services - including other banks. Those costs are only calculable if you know the full scope of the bad behavior, which, without appropriate regulation ensuring reporting and review, you can't.
Of course, if you don't believe banks ought to be regulated in order to protect their customers, it doesn't matter. But that's a different conversation.
The claim is actually the opposite: You can never make the claim that no regulation is good, because you don't know what you don't know.
(But you absolutely can still make that claim, in fairness; you just can't base it on a cost-benefit analysis from the customer's perspective.)
The OP said that this shows why regulation gets good results, and I challenge the evaluation by saying we have seen the benefit of this particular regulation, but not the cost.
You argue that is hard to know both the cost and the benefit of regulations. I argue that if you cant gauge it, then you can never conclude if its good or bad.
I rather put the responsibility of proving itself to the guys with the battons.
Here's where the trick is. I'm not saying "you can't gauge it"; you even acknowledged in the previous sentence that that's not what I'm saying. I'm saying it's complex, because in order to gauge it, you must have some of it, otherwise there is no way to produce reliable metrics.
Yes, that requires incurring some cost. But the risk of much higher costs comes down dramatically once the initial cost is paid, because the information it provides makes us able to avoid greater costs down the road.
What you're saying is that if we can't build a tower all in one go, we can't build it at all. I'm saying we can do it in reasonable stages, but we have to lay a strong foundation first.
Banks ultimately compete with each other, and there is inevitably an information asymmetry between banks and their clients. A good faith bank will lose out to banks that "accidentally" employ dark patterns against their customers, if the customers are unaware that they are being cheated, or if the costs of remedies are more expensive than the damages.
People often talk about the value of assuming positive intent on Hacker News. I agree with this in principle, but I also think it is important to create an environment where people acting in good faith are rewarded with not having to waste their time thinking up schemes to compete with dishonest competitors. The bias toward assuming incompetence and honest mistakes over ill intent unfortunately gives cover to people who employ plausible deniability to cover intentional fraud. Cell phone companies, cable companies and utilities make billing errors far too often to plausibly credit honest mistakes alone. At least in their case they don't already have direct access to your assets in the way that banks do.
In other words, it tends to put a brake on the most egregious of the self-serving greed that turns into scandals and damages that destroy businesses. When it is effectively written and enforced.
People talk about costs -- often like every cost is bad.
Having worked in accounting for a while, I can say that it was sometimes an uphill battle to get people to do things right. Having rules -- internal and external -- helped in that regard.
A resulting benefit? Management actually knew the real state of the books, and could operate accordingly on that basis.
And, those precious banks were less likely to get ripped off by mis-representations.
Regulation's not bad. Crap regulation -- laws and rules and enforcement -- is.
And no, the money wouldn't come from customers, why would it? Citi is a for-profit entity, this came out of their profits.
Got it.
Nothing leads me to believe that the second set is different from the first. In fact, the word “refund” suggests they’re the same.
The inverse opinion that regulation is always good is equally terrible.
Do they ever mistake to give people free money (at such scale?) I bet the stealing happens a lot more often.
In general, banks want to get it right. If they want to make more money, they can always change the terms. Not saying that all banks are snow white lilies, but they generally want to have everything accurate to the rules. The way they win is by helping to write the rules.
A proper value comparison would be 'cost of all audits caused by this regulation' vs 'benefits gained from mistakes found by it'. You also need to assess risk reduction, what kind of risks it protects from and set a value on that. Then you could realistically say if it's net positive or not.
And when something is mandatory across industry it's easy to price in directly to consumers because nobody can compete on it, so this likely doesn't eat on a bottom line but increase price for consumers.
Again not trying to argue that this or all regulation is bad, just that your evaluation of what's working seems deeply flawed.
I don't think accurately captures it and is certainly not fair to the customers. The cost is not from the same source.
Let's say audit cost per year is $100, and savings per year is $100:
If they choose to forgo auditing:
Citi: $200
Customers: -$100
If they do auditing:
Citi: -$100
Customers: $100
It's apples and oranges. Regulation is about the customer and societal protections, not the protection of the company's profits. If a regulation is sound in terms of need but too expensive for a business, we shouldn't do away with the regulation altogether.
As with your post, this isn't defending all regulations or that specific parent argument, just pointing out that the cost on the company being regulated versus money saved is not a valid metric for deciding if a regulation is needed. The regulation accounts for many more intangibles such as fair customer protections, and again, is not aimed at the value of the regulation for the company being regulated, though a regulation that causes a needed private business to be unprofitable is likely not sound.
If your regulation costs more than it saves consumers, then it'll need extraordinary justification, i.e. all of the costs are carried by only few consumers.
If there were regulations forcing an expensive audit, I'm sure we would have built that into the cost of business and passed it on - but not the results of our mistakes.
Seems simple enough.
They don’t have to do that, though.
This is mind boggling. Its the equivalent to arguing in favor of burning assets. Why would you make people work on things that reduce value?
To take this to ridiculousness, we wouldn't stop chasing murderers if we found out that it cost more to chase them than clean up the bodies after. It's because we care about murder beyond its net economic value. And no, I don't care about the specifics of "oh maybe people being more scared of getting murdered will decrease GDP". My point here is that this is a clear case where value is brought beyond economic value. Regulations are often too in this category, though obviously a bit less than law enforcement.
If you pay more than you would have, you wouldn't be paying what you have to, you are paying more. Its like putting an inspector on a bus to check tickets, but he gets the money from all the bus tickets collected.
Missing the forest for the righteousness.
> To take this to ridiculousness, we wouldn't stop chasing murderers if we found out that it cost more to chase them than clean up the bodies after. It's because we care about murder beyond its net economic value. And no, I don't care about the specifics of "oh maybe people being more scared of getting murdered will decrease GDP". My point here is that this is a clear case where value is brought beyond economic value. Regulations are often too in this category, though obviously a bit less than law enforcement.
The comparison to murder would be for the state to kill everyone suspected of a crime so crime murders go really down.
The market may dictate they reduce profit or other incentives over increasing the cost of their product.
If Citi tries to increase prices, Amex and Chase will laugh and scoop up their customers. Very few people are “stuck” with Citi
Starting situation(note there are only 100 bucks): Citi: $0 Customer: $100
Without audit: Citi: $100 Customer: $0
With audit(a): Citi: $0 Customer: $0 Government: $100
Alternate with audit(b): Citi: -$100 Customer: $100 Government: $100
But citi can't run negative as a whole. Its a business, if it didnt make money, it would shut down. So A is whats actually happening with the numbers provided.
Where does the government get the $100 from? The audit isn't conducted by the government as far as I'm aware, just mandated by them. Correct me if I'm wrong there of course.
> note there are only 100 bucks
That's my whole point: there isn't. The money they accidentally stole from customers (and eventually are now giving back) is different from the money they spent to conduct the audit, regardless of if for any given audit they find money that was misplaced.
> But citi can't run negative as a whole. Its a business, if it didnt make money, it would shut down.
People are acting as if this audit's cost will run Citi out of business, which I would find very hard to believe to be the case. If you actually read my post carefully, I too believe a regulation that causes that is likely flawed.
My whole point is being missed here: some good regulations can cut into profits of businesses and still be worth it from the perspective of the society as a whole. Only once a regulation is so strong of a profit cut that a needed business cannot exist is a regulation likely flawed. Of course, there are many other ways for a regulation to be flawed as well.
Well the bank is not keeping it, and the consumer is not keeping it. So whoever got that money got it because government said they should. They could be independent accountants but for any purposes, the government gave the money to the auditors, being their own or someone elses.
> That's my whole point: there isn't. The money they accidentally stole from customers (and eventually are now giving back) is different from the money they spent to conduct the audit, regardless of if for any given audit they find money that was misplaced.
Thats what you want to believe, but the money they get to spend on the audit all came from customers, they didnt come from the pockets of management. So if you want to believe the money was not taken from customers in this instance, it was in another instance, and now the problem of analysis expands into other areas.
> My whole point is being missed here: some good regulations can cut into profits of businesses and still be worth it from the perspective of the society as a whole. Only once a regulation is so strong of a profit cut that a needed business cannot exist is a regulation likely flawed
Regulations affect company profits in a different variety of circumstances: it depends on the elasticity of the supply. If you put a regulation on ALL banks, then there is no chance in supply, meaning that the consumer bears the entire cost of regulation.
Regulation affects profits of companies, generally by increasing the margin and decreasing the amount, because small companies cannot compete on regulations, the supply decreases, giving big players an advantage.
Remember how they just made it costly to have an account with little money with the bank? That's because it costs money in regulatory compliance. And the bank quickly wants to get their money back or they don't provide the service.
Banks are a special case of market for many reasons, for their capacity to destroy, for their leverage, for their relationship to the government. They have better cases for regulation than most markets. But the original thread made a claim it cannot sustain and i called it out on it.
> Regulations affect company profits in a different variety of circumstances: it depends on the elasticity of the supply. If you put a regulation on ALL banks, then there is no chance in supply, meaning that the consumer bears the entire cost of regulation.
I think that's a fair expansion of scope, but something unmentioned here is that customers are not uniform in benefits received. Paying for the regulation ends up a bit like paying for insurance here - you may pay more this year, but it can save you against anything catastrophic.
> Remember how they just made it costly to have an account with little money with the bank?
Not at all banks by any means. Different banks offer different perks and spread around the cost differently, turning knobs like interest, fees, service quality, etc. There are still a good deal of options in the sector.
> But the original thread made a claim it cannot sustain and i called it out on it.
This has divulged a bit, though in interesting ways, so not without reason, but which claim is false specifically?
That was my point - you need to assess this and then add it to cost benefit analysis. Saying that it's worth it just because caught a random error that amounts to 300M$ is very bad reasoning that can be used to justify very bad legislation. And unfortunately people accept this kind of reasoning from politicians. I expect more from HN.
> As with your post, this isn't defending all regulations or that specific parent argument, just pointing out that the cost on the company being regulated versus money saved is not a valid metric for deciding if a regulation is needed. The regulation accounts for many more intangibles such as fair customer protections, and again, is not aimed at the value of the regulation for the company being regulated, though a regulation that causes a needed private business to be unprofitable is likely not sound.
I’m not sure where this idea comes from that companies pass all costs on to customers. Citi does have profitable quarters and unprofitable quarters. If they have to take a $350 million charge off for overcharging people, then they will have a less profitable quarter and their shareholders will have to deal with it. If they try to jack prices way up to cover for it, then many people will just switch to Chase or Amex since they have better deals anyway. It’s like saying we shouldn’t charge Volkswagen for the emissions scandal because our cars will get too expensive. In reality, VWs will stay at basically the same price. If they got more expensive right after they got caught cheating everyone, then they simply won’t sell.
Secondly, businesses are a complex beast. It's not a simple debit/credit and there are tons of different schedules which run simultaneously. It is easy to get lost - whether it is customer's or the business' own money. So, every business run audits and reviews. Banks more so because they have other people's money. The only difference is whether they have legally mandated to share the findings and take corrective action.
It took me two reps and two accounts managers to learn how these things are calculated:
1) Interests are daily compounded.
2) Interests are not calculated on actual balance but on the average daily balance.
3) If you don't pay your statement balance in full by the end of the month, you lose your grace period for future purchases and interest would start accruing as soon as the transactions goes through. To reset this it would require you to make two full statement payments in a row.
4) If you purchase something and return it and the return takes a few days to process, you would still pay interest on for those days.
The rep and the first account manager that spoke to weirdly dint have the basic understanding of interest rates. She argued that the $12 interest was on the $2000 for 4 days at the rate of 5.99%. Funny enough, she still din't find anything odd when I pointed out that it would mean, by the end of the year, I would pay $1095 ie. > 50% of the principal in interest!
Anyways the second rep was knowledgeable enough to explain it.
The article only mentions returning the original amount AFAIK so it looks like Citi might still be profiting from this error.