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Friday, July 19, 2024 | Back issues
Courthouse News Service Courthouse News Service

Class of Customers Is Steamed at Citibank

SAN JOSE (CN) - A customer claims in a federal class action that Citibank lured him to open a new account by offering frequent flyer files on American Airlines, without explaining the tax obligations of the "value" of the air miles - while Citibank got a tax break by calling the miles a business expense.

Lead plaintiff Amer Safadi claims he signed up after getting a promotional offer in the mail. He claims Citibank issued him 60,000 frequent flyer miles after he complied with the terms of the promo, which included opening new checking and savings accounts with a certain amount of money, and using the associated debit card "a certain number of times within a certain time period thereafter."

But Safadi says Citibank did not inform him, or the class, that it would "issue a [federal tax] Form 1099 for receipt of the airline miles, failed to state that Citibank had already calculated what it believed was the 'value' of the airline miles for reporting purposes on the Form 1099; failed to state what that 'value' to be reported on the Form 1099 would be; and failed to state whether the airline miles would ever expire or otherwise lose the 'value' that they may have. Rather, the offer simply states: 'Customer is responsible for taxes, if any.'"

After he opened his account, Safadi says, he was "surprised" to receive a Form 1099 from Citibank, "indicating plaintiff had received $1,500 worth of 'income' from Citibank for receipt of the airline miles. ...

"This amount far over-states the actual 'value' the airline miles may have, if indeed they have any 'value' to plaintiff at all. However, defendant is motivated to over-state the 'value' of the airline miles issued to plaintiff since the amount reported on the Form 1099 may qualify as a business expense for defendant, and may therefore decrease defendant's tax obligation, resulting in a significant financial benefit to defendant at plaintiff's expense."

Safadi says in his complaint that U.S. Sen. Sherrod Brown, D-Ohio, sent a letter to Citigroup's CEO on Jan. 30, requesting that Citibank stop issuing Form 1099s to its customers. Brown is chairman of the Senate Banking Committee on Financial Institutions and Consumer Protection.

"In a newspaper interview response, Citibank implied that it would continue the practice of issuing Form 1099s notwithstanding consumer complaints and the problem with assigning a 'value' to the frequent flier miles," the complaint states.

Safadi seeks an injunction, restitution and punitive damages for consumer fraud, unfair competition and breach of contract.

He is represented by Jason Baker, with Keegan & Baker, of San Diego.

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