Have you ever wondered how a debt collection company gets the names and contact information for people who may or may not owe money? A recent action against Citibank by the Consumer Financial Protection Bureau sheds light on an often shady practice that seems especially shady in this case. 

Citibank, according to the CFPB, from 2010 to 2013 sold credit card debt to 16 debt collectors and inflated the interest rates people paid from zero to 29 percent. When people actually paid their bills to the bank, Citibank failed to tell the debt collectors about the payments.

While Citibank did not admit wrongdoing, it did agree to repay $5 million to 2100 consumers and pay a $3 million penalty. And Citibank will pay additional penalties because two law firms, Falconi & Associates and Solomon & Solomon, PC, falsified court documents in connection with the collections in New Jersey. Consumers will get $11 million in this part of the case, and Citibank must stop trying to collect about $34 million from about 7,000 people.

CFPB Director Richard Cordray said the “. . . action provides redress to consumers who were victimized by slipshod practices.” He described the settlement “. . . as part of our ongoing work to fight abuses in the debt collection market.”

Makes you wonder why some people didn’t get jail time. 

But as a result of the settlement, from now on Citibank will have to let credit card holders know what they owe, and tell them when the bank sells their debt. The settlement also requires companies that buy debt from Citibank to sign agreements that prevent them from reselling the debt.