Citibank has been sued by a pair of customers who allege they were forced to buy "worthless" and expensive loan insurance they were misled to believe was car insurance when they took out auto loans with the institution. As of Friday afternoon Citibank had made no comment on the allegations.
The law suit, filed in U.S. District Court on Wednesday, claims Citibank sold the residents Vendor's Single Interest (VSI) insurance, which according to the pair's attorney Claudette Ferron, protects only the bank if clients default on their auto loan or the vehicle is stolen.
"It's a rip off," Ferron said in a released statement. "Citibank has been charging its Virgin Islands customers thousands of dollars for loan insurance that doesn't protect their cars at all.
"Customers are being led to believe that they're buying car insurance, but what they're buying is loan insurance that covers only the bank," she said.
VSI insurance is not illegal. It insures the balance of the car loan given to a customer; if the customer defaults on the loan and the car is repossessed, or the car is stolen or totaled, VSI pays the bank the balance of the loan, Ferron explained.
Thus, if a borrower's car is worth $5,000 at the time it's lost or totaled, they have no other insurance and they still owe $500 on their car loan, VSI insurance will pay the bank $500 while the customer loses the $4,500 equity in the car.
Regular car insurance would reimburse the value of the car and the borrower would pay the bank the remaining $500 of the loan.
According to the suit, Citibank broke the law when it either misled customers about VSI insurance or did not adequately explain its purpose.
"I don't believe anyone who signed a Citibank car loan really understood what they were being forced to sign," Ferron said. "Citibank had a duty to disclose to their customers what VSI insurance really is."
Other banks in the U.S. require car loan customers to buy VSI insurance. The suit also alleges, however, that Citibank's VSI are rates are astronomical compared what it charges in the U.S.
The suit alleges Citibank charged one of the plaintiffs, Ebony Potter, $4,354 for VSI insurance on a $20,500 loan, but it only charges customers in the mainland a one-time $37 fee.
"That's a mark up of over 15,800 percent," Ferron said. "When you add interest over five years, she was being charged $5,8771.31 for loan insurance that didn't even protect her car."
The suit claims Citibank was able to continue this practice because of the territory's flimsy insurance laws.
"It's unconscionable. And Citibank can do it in the Virgin Islands because the laws on the books either don't apply or they're outdated or too weak. They couldn't do it anywhere else," Ferron said.
The Virgin Islands does not have any regulations governing the type of loan insurance Citibank sold. The territory also has not enacted consumer credit protection laws that would guard residents from excessive loan insurance, Ferron said.
"Citibank had a duty to disclose to their customers what VSI insurance really is They also had a duty to disclose that Citibank got a huge commission from the insurance company for every VSI insurance policy it sold," she said.
The plaintiffs are suing for a refund of all the VSI premiums they paid plus other compensatory and punitive damages.
"Citibank is relying on weak laws and no government oversight to take advantage of people in the Virgin Islands," Ferron said.
