Citibank 2011 Annual Report Download - page 56

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Payment Protection Insurance
The alleged mis-selling of payment protection insurance products (PPI) by
financial institutions in the UK, including Citi, has been, and continues to
be, the subject of intense review and focus by the UK regulators, particularly
the Financial Services Authority (FSA). PPI is designed to cover a customer’s
loan repayments in the event of certain events, such as long-term illness or
unemployment. The FSA has found certain problems, across the industry,
with how these products were sold, including customers not realizing
that the cost of PPI premiums was being added to their loan or PPI being
unsuitable for the customer. Prior to 2008, certain of Citi’s UK consumer
finance businesses, primarily CitiFinancial Europe plc and Egg Banking plc,
engaged in the sale of PPI. While Citi has sold a significant portion of these
businesses, and the remaining businesses are in the process of wind down,
Citi generally retains the potential liability relating to the sale of PPI by
these businesses.
As a result of this regulatory focus and resulting publicity, during 2010
and 2011, Citi observed an increase in customer complaints relating to
the sale of PPI. In addition, in 2011, the FSA required all firms engaged
in the sale of PPI in the UK, including Citi, to review their historical sales
processes for PPI, generally from January 2005 forward. In addition, the
FSA is requiring these firms to proactively contact any customers who may
have been mis-sold PPI after January 2005 and invite them to have their
individual sale reviewed. Redress, whether as a result of customer complaints
or Citi’s proactive contact with customers, generally involves the repayment
of premiums and the refund of all applicable contractual interest together
with compensatory interest of 8%.
As a result of these developments during 2011, Citi increased its reserves
related to potential PPI refunds by approximately $330 million ($230 million
in LCL and $100 million in Corporate/Other for discontinued operations).
Citi continues discussions with the FSA regarding its proposed remediation
process, and the trend in the number of claims, the potential amount of
refunds and the impact on Citi remains volatile and is subject to significant
uncertainty and lack of predictability. This is particularly true with respect
to the potential customer response to any direct customer contact exercise.
Citi continues to monitor and evaluate the PPI remediation process and
developments and its related reserves.