The following is not legal advice. Please contact an attorney or Alexander Bachuwa if you have questions or claims regarding consumer arbitration.
Following one of my Fine Print posts, a Frequent Miler reader messaged me regarding a problem she was having with her Citi accounts. Despite being a Citi customer for years, unexpectedly all of her credit card accounts were instantly shutdown without explanation and millions of ThankYou points were confiscated. What follows is the battle we had against Citi and the final result.
While the details of every case involving account shutdowns are unique, the fact pattern is generally the same.
- A customer signs up for an award credit card which has a bonus after spending a specified amount.
- The customer is granted the sign-up bonus.
- The credit card may have additional perks such as receiving 5X points for purchases at grocery stores or gas stations.
- The customer takes advantage of this offer.
- The customer is awarded points for doing so.
- The annual fee on the card becomes due.
- The customer calls to cancel the card.
- The customer is given a retention offer for his or her loyalty whereby the 5X spend promotion is extended.
- The customer takes advantage of this offer.
- The customer is awarded points for doing so.
- The customer periodically redeems points for mortgage payments, flights, and hotels while maintaining a healthy points balance.
- Months, perhaps years later, the customer receives a notice that all of his or her credit card accounts have been shutdown and his or her points have been forfeited.
Futile Attempts at Resolution
- The customer calls customer service who confirms that the account is indeed closed and refers the customer to a letter that states the same.
- The customer writes a letter to the corporate office where an ‘investigation’ of what happened takes place.
- The customer receives the same letter on a different letterhead.
- The customer files a claim with the feckless Consumer Financial Protection Board.
- The customer receives the letter again.
- The customer is left with three options:
- Give up
- Small claims
- Consumer Arbitration
The overwhelming majority of contracts governing consumer products and services have a dispute resolution provision that limits a claimant’s remedy to two options: file in small claims court or prosecute the claim through arbitration. A class-action lawsuit is strictly prohibited. The issue with the small claims option is that damages are limited and that some states actually prohibit attorneys in such proceedings. The latter point clearly favors big corporations that have infinite resources and a stable of lawyers.
In this case, my client agreed to pursue the claim in arbitration and hired me to represent her on a contingency fee basis i.e., I would only collect a fee if the client prevailed or if the case settled. Absent this fee arrangement, it would have been cost prohibitive for my client to retain a lawyer to go up against a behemoth like Citi.
Intent to Arbitrate
I filed a claim against Citi with the American Arbitration Association (AAA) seeking two forms of relief: Monetary relief in the amount of $17,000 and non-monetary relief which would be the restoration of my client’s ThankYou points. The monetary claim was based on $.008/point, half of the value of ThankYou points when used by a Citi Prestige cardholder to book American Airlines flights. I did not seek the entire value of the points because my client was more interested in getting her points back than money. The client would appear greedy if she asked for the full monetary value of the points and the actual points. I advised my client that it was a long-shot that Citi would ever give back her points even if she won in arbitration. At the same time, if a points refund was not an option, we could ask the arbitrator for the full value of the points in terms of the monetary award.
First Correspondence with Opposing Counsel
After I filed the claim, I waited for a case manager from the AAA to be assigned to the case. The case manager is in charge of scheduling hearings and serves as a liaison among the attorneys and the arbitrator. That process took more than thirty days to complete. Shortly thereafter, I received an email from Citi’s lawyer. I spoke to the attorney and was informed that my clients’ accounts were closed for consumer abuse in connection with manufactured spending. Citi presented my client with an offer to settle the claim for $3,500 if we agreed to dismiss the arbitration claim.
A Note on Arbitration Costs
Under the consumer arbitration rules, the consumer’s side has to pay $200 to file a claim. The respondent has to pay its portion of the administrative fee which is $1,700 as well as compensation for the arbitrator which starts at $1,500. In addition, the respondent would have to pay outside counsel to represent the company in the matter should it choose not to use its own lawyers. In addition to the outside counsel’s hourly rate or fixed fee, the respondent may also have to pay for air, hotel accommodations, and a per diem if the attorney does not reside in the location where the arbitration is held. As a result of such costs, some companies find it financially prudent to settle claims while others will incur the cost in order to send a message to attorneys and consumers that simply filing an arbitration claim will not result in a cash windfall for the claimant.
This claim had merit. It was not, by any means, frivolous. As a result, we rejected the proposed settlement and began preparing our case.
The Terms and Conditions: Fraud vs. Abuse
Citi’s terms and conditions have evolved over the years, undoubtedly as more customers discover more ways to maximize their points earning potential.
Here are Citi’s terms for ThankYou accounts from October 2016:
Fraud, Misuse, Abuse, or Suspicious Activity. If we see evidence of fraud, misuse, abuse, or suspicious activity, we’ll investigate and, if we determine that fraud, misuse or abuse has occurred, we may take actions against you. These actions may include, without limitation:
- Taking away the Points you earned because of fraud, misuse or abuse
- Stopping you from earning Points
- Suspending or closing your ThankYou Account
- Taking legal action to recover Rewards redeemed because of such activity and to recover our monetary losses, including litigation costs and damages
Here are Citi’s terms from November 2013 (when my client was using her Citi cards):
ThankYou Rewards may close or freeze your ThankYou Member Account immediately. If you have conducted any fraudulent activity, ThankYou Rewards reserves the right to take any necessary legal action and may have grounds to confiscate any rewards redeemed as a result of such activity.
The language in 2013, the period my client was earning the majority of her points, cites fraud not abuse as a reason for account shutdown. The definition of fraud varies by jurisdiction but, for the sake of simplicity, the dictionary definition is wrongful or criminal deception intended to result in financial or personal gain. In my legal opinion, alleging fraud means alleging criminal activity. Manufactured spending may be frowned upon but it is not against the law. My client admitted that she was buying a significant amount of gift cards to take advantage of the category spends but in no way was she deceiving anyone by doing so.
A Note on Counter-Claims
I advise my clients of the possibility that a counter-claim may be filed against them. For many corporations, a counter-claim is an automatic response, a passive aggressive way to signal to the claimant that the corporation is actually the one in control. Some corporations like eBay include clauses in its arbitration agreement that if a claim is found to be frivolous, the consumer will be responsible for the aforementioned arbitration costs. Some corporations use counter-claims as a tool to induce settlement or surrender. Given the capacity of the opponent, it can be very intimidating for the lawyer and client alike to move forward with a claim when they are suddenly under siege by a foe that is too big to fail.
The Legal Argument
In our estimation, the 2013 terms and conditions governed this claim. Confident that no fraud had been committed, my client was willing to testify that she simply took advantage of the offer that was presented to her and if Citi wanted to place a cap on the offer, it could easily have done so. Furthermore, my client would argue that her past behavior was ratified by Citi when she was given a retention offer which encouraged her to keep spending in the same manner as she had done in the past.
If Citi somehow tried to use the consumer abuse language of 2016, our argument would have remained the same. Citi, equipped with a team of lawyers and a robust marketing department could have used more explicit language to define what is and what is not permissible. If a mom and pop grocery stores has the wherewithal to place a limit of ‘one turkey per household’ during a Thanksgiving Day sale , then surely Citi could have foreseen the consequences of not implementing a cap on its promotion. Not only did Citi fail to mitigate against this possibility, it also encouraged it by blatantly stating that there was not a limit on points that could be earned. Unsurprisingly, throughout this process, Citi would not divulge how much category spending is enough to trigger a shutdown.
Finally, it can be argued that Citi was unjustly enriched. Citi capitalized from the tens of thousands of dollars from my client’s purchases in the form of transaction fees. If Citi truly believed that fraud or abuse had taken place, it should refund the fees to the merchants from where the transactions occurred. It is unseemly that Citi only cried foul when it was time for it to uphold its end of the bargain.
To Settle Or Not To Settle
The problem with having an attorney who is involved in the world of points and a client who is just as obsessed is the lack of perspective. Although I was excited by the prospect of going through the entire arbitration process with Citi, I also had an ethical obligation to inform my client of the risks that she faced. First, there still was the chance of a counter-claim, a remote possibility but one that would weigh heavily on the client if it materialized. Second, the arbitrator, an autonomous decision maker who is not bound by formal laws, could easily decide that my client is greedy and is entitled to nothing. It is not implausible for an arbitrator to rationalize that my client violated the mythical ‘spirit of the rule’ doctrine by exploiting the promotion. While I vehemently disagree with that logic, I recognize that an arbitrator can decide anyway he or she chooses without having to cite reasons for doing so when issuing the award. Finally, if we did prevail, it is very likely that Citi, as is its right, would appeal the award. From there, we would have to start the process anew.
After going back and forth and forth and back, I thought I found a clever way out of this pickle. I called Citi’s attorney and proposed a settlement whereby the client’s ThankYou account would be temporarily restored. Citi would not have to pay more than the original $3,500 settlement amount and would not have to reopen the client’s credit cards. I even said that Citi would only have to put back a percentage of the points. Citi promptly rejected this offer.
Two weeks before the preliminary conference was set to take place, I countered with a final cash settlement amount that was higher than Citi’s original offer. A few days later, I received an email that Citi had accepted my offer. I found it quite interesting that Citi would rather pay more money than reissue points, something that was valuable to my client but has no inherent monetary value.
Ultimately, my client and I were simultaneously happy and disappointed that this case settled. We were happy because we took on Citi and received a decent settlement amount. We were disappointed because maybe we should have kept on going. Perhaps we could have won. Perhaps our defiance in victory or defeat would have sent a stronger message to Citi.
The Confidentiality Agreement
In most arbitration cases that settle, companies require the client to sign a confidentiality agreement. The companies request that the attorney do so as well. As a matter of principle, I refuse to sign these agreements. Had I done so, the general public would remain in the dark. Claimants would not know that it is possible to go up against corporate giants like Citi. They would have little or no insight regarding the intricacies of the arbitration process. Most importantly, they would have no idea that real results are possible.
Initially, Citi refused to waive the confidentiality agreement as it pertained to me, something I felt was borderline unethical since the settlement agreement was between the client and Citi. I informed my client of this awkward situation and she told me to remain steadfast in my belief of not signing the confidentiality agreement. In the end, Citi capitulated to my demand so long as I did not disclose the exact amount of the settlement. While I would have liked to boast about how much money we received, it was more important for me to be able to share the details of how my client and I overcame Citi’s questionable behavior. It is my hope that more consumers will come forward and challenge not only Citi but other corporations that have a disproportionate amount of power over its customers.
The Way Forward
Even though a class action is not possible against many corporations, filing numerous, meritorious claims against companies can crack the shield of invincibility as they will be forced to pay more in settlements and awards, more in attorney fees, all the while enduring negative publicity. With each claim that is settled or won, the voice of the consumer will grow louder while the avenues to escape liability will be shutdown, an ironic twist that is long overdue.