Various bonus miles earned from opening bank accounts are considered taxable income, and Citi has long issued 1099-MISC forms treating account opening bonuses as income for recipients—especially for Citigold, now Citi Priority. Citi also assigned an inflated value to AA miles, which led to many terrible outcomes where people received 50,000 AA miles but ended up owing $500+ in taxes.
Some people who were fed up with this filed a class action lawsuit, Hirsch v. Citibank N.A., in the U.S. District Court for the Southern District of New York, alleging the following claims:
- Deceptive conduct, negligent misrepresentation, and unjust enrichment: Citi failed to disclose, or falsely disclosed, that AAdvantage miles received for opening an account were not taxable, thereby inducing customers to deposit money at the bank (some account opening bonuses required maintaining a certain amount on deposit in order to qualify);
- Breach of contract and breach of the implied covenant of good faith and fair dealing: Citi reported AA miles to the IRS at a value of 2.5 cent/mile, but did not provide customers with AA miles actually worth that amount (because AA miles were not worth that much);
Procedure and Outcome
This lawsuit was filed by the named class representative plaintiff in February 2012 (complaint). Citibank argued that the lawsuit was barred by a mandatory arbitration clause in the customer agreement, while the plaintiff argued that no agreement was ever received after the account was opened. The parties appealed this issue twice to the Second Circuit, which ultimately ruled that there was no valid arbitration agreement between the customers and the bank, allowing the case to proceed. After years of litigation, a settlement agreement was filed with the court in September 2016, and in July 2017 the court preliminarily approved the class action settlement (court order).
Settlement Terms
If you received a 1099 tax form issued by Citibank between January 1, 2009 and July 13, 2017, you may be eligible for compensation in varying amounts depending on your situation:
- If you filed taxes based on the amount shown on the 1099 form, your compensation is the amount on the tax form * your federal marginal tax rate * 70%;
- If you did not file taxes based on the amount shown on the 1099 form, you will receive $40.
If the total amount of compensation exceeds $1,750,000, then each person’s recovery will be reduced pro rata. For example, if you received a Citi tax form showing $1,000, and your top federal tax rate was 35%, then your compensation would be $1,000*0.35*0.7=$245
What Should I Do?
You can view the court-approved notice here: you may choose to- Submit a claim form online by November 27 (click here) to receive settlement compensation;
- Request exclusion from the class action by October 11 in order to preserve your right to sue separately;
- Object to the settlement by October 11 while remaining part of the lawsuit;
If you do nothing, your legal rights may be affected. This article is not legal advice. If you have legal questions, please consult your own attorney. We recommend acting as soon as possible—whatever option you choose, the deadlines are approaching quickly, so do not forget.