Citibank Secretly Reclassified Mobile App Payment Transactions as Cash Advances, Class Action Alleges

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A proposed class action claims Citibank, N.A. has failed to disclose that the purchase of goods and services through mobile electronic payment (MEP) apps linked to a Citibank credit card are classified as cash advances and therefore subject to higher fees.

Although it initially categorized MEP transactions—which include payments made through Venmo, PayPal and the Cash App—as standard purchases, Citibank has, without notifying cardholders, reclassified the purchases as cash advances that incur cash advance fees and interest charges with no grace period, the lawsuit alleges. As a result, those who use their Citibank credit cards to make payments through MEP apps have been hit with unexpected fees and higher interest payments “without any warning that such a change in processing or coding of MEP App transactions was forthcoming by Citi,” the case says.

The breach-of-contract lawsuit alleges Citibank has violated the federal Truth in Lending Act and California’s Unfair Competition Law.

Per the lawsuit, the popularity of MEP apps, including Venmo, PayPal and the Cash App, has “markedly increased” in recent years. The apps generally allow consumers to make purchases using an in-app account balance as well as a linked funding source, which can include a checking or savings account, debit card or credit card, as selected by the user, the case explains.

When a mobile payor (i.e., someone who uses an MEP app to make purchases) links a Citi credit card to an MEP app, the bank, until recently, categorized such transactions as standard purchase transactions, the suit relays. Standard purchases, the lawsuit states, are subject to Citi’s standard interest rate and an interest-free grace period of 30 days, as disclosed in the defendant’s consumer credit card agreements, per the suit.

In early 2020, however, Citi, without warning to cardholders, reclassified MEP app purchases as cash advances, which, unlike standard purchases, incur a fee on each transaction, are subject to higher interest rates, and have no 30-day interest-free grace period, the case alleges.

The problem, according to the lawsuit, is that Citi has failed to disclose the change to cardholders, who expected, based on Citi’s credit card agreements and previous practices, to not be charged higher fees and interest rates when using their Citi credit cards to make purchases through MEP apps.

“Citi’s undisclosed reclassification of MEP APP transactions from standard purchases to cash advances amounted to a significant material deviation from its application of its Card Agreement account terms,” the complaint alleges. “Yet, Citi elected not to amend its current Card Agreement terms or otherwise advise its cardholders of the impending change in how it would classify and process MEP App payments funded by a Citi credit card.”

Per the suit, while the Truth in Lending Act mandates that credit card account opening disclosures be “clear and conspicuous,” Citi has instead “sowed confusion” among its cardholders by failing to disclose the reclassification of MEP purchases as cash advances. Moreover, the defendant has, according to the suit, breached its agreements with consumers by categorizing the MEP transactions in a manner not consistent with the terms of its contracts.

The lawsuit looks to cover anyone who, within the applicable statute of limitations period, utilized a mobile electronic payment application to fund a payment with a credit card issued by the defendant and had the transaction classified as a cash advance by Citibank. The suit also proposes to cover a “subclass” of California residents who meet the same criteria.

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