Friday, February 17, 2012

New customers furious at Citibank gimmick, filed federal class action

MANHATTAN (CN) - Irate customers claim in a federal class action that Citibank lured them in by offering 40,000 frequent-flier miles to open an account - but didn't tell them they had to report 2½ cents per mile as income to the IRS.
Lead plaintiffs Bertram Hirsch and Igor Romanov say that Citibank grossly overvalued the miles, which have no actual value to customers and should not be taxable.
"Citibank regularly offers promotional American Airlines miles to induce customers to open up checking or savings accounts at Citibank, usually with a minimum deposit of $25,000," the complaint states.
"What Citibank does not disclose to customers who take advantage of the American Airlines miles promotions is that Citibank will file with the Internal Revenue Service ('IRS') a 1099-MISC reporting that they received miscellaneous income, in the amount of 2.5 cents per mile, for the American Airlines miles provided to such customers.
"It is widely understood in the marketplace that airline miles are not reported to the IRS as being taxable for income tax purposes. Indeed, Citibank expressly informed plaintiff Hirsch that the American Airlines miles that he would receive for opening up Citibank checking and savings accounts were not taxable.
"Even if the airline miles were taxable, Citibank's practice of valuing the airline miles at 2.5 cents per mile is grossly unfair and deceptive. Airline miles have no value to Citibank customers that can be fixed at the time they are awarded. If redeemed, these miles typically have an average value to customers of between .76 cents per mile and 1.2 cents per mile. At least one study recently concluded that American Airlines miles in particular are only worth about .76 cents per mile.
"Citibank failed to make these material disclosures because it knew that very few customers, if any, would take advantage of the airline miles offers because they did not make economical sense. Citibank benefits from this practice by gaining additional banking business and savings deposits from which it could lend out at much higher interest rates than the low interest rates paid to plaintiffs and the members of the class.

No comments: