Citibank denied account to those with Armenian names: lawsuit

The sign to a Citibank location is shown in San Francisco, Tuesday, April 25, 2023.

Nov. 27, 2023 3 AM PT

When Mary Smbatian started hearing rumors a few years ago that Citibank was closing the accounts of Armenian Americans in the San Fernando Valley, she thought it impossible the giant Wall Street bank would ever shutter hers.

A residential loan broker who also runs an apartment management business, the Encino resident had been a Citibank client for more than a decade, with both company and personal accounts, as well as credit cards issued through the bank.

Then, on Feb. 1 of last year, she got a letter from Citibank informing her that all of her accounts and cards were being closed — without any reason provided. What ensued was chaos, as Smbatian scrambled to get her money back, open new accounts elsewhere and save her businesses.

“This was a mess. This was horrible. This was so depressing,” said Smbatian, 42, a mother of five who said she was still shaken by the events. “I was so stressed out, I literally started crying.”

Smbatian and others whose accounts were closed suspected discrimination was at play — and say they were proved correct when Citibank signed a consent order Nov. 7 with the Consumer Financial Protection Bureau, agreeing to pay $25.9 million to cover alleged violations of fair lending laws from at least 2015 to 2021.

The agency alleged that a unit responsible for issuing store-branded credit cards from Home Depot, Best Buy and other retailers had discriminated against applicants whose surnames ended with “ian” or “yan,” and particularly those who lived in and near Glendale.

The bank suspected that applicants seeking new cards or credit increases would be more likely to commit fraud and not pay their charges, with some employees referring to them as “Armenian bad guys” or the “Southern California Armenian Mafia.” The applicants were subjected to higher scrutiny and many were turned down, approved credit on less favorable terms or subject to possible account freezes and closures, according to the order.

The agency also also found that the bank took “corrective action” against employees who failed to identify and deny the applications. Employees were ordered not to tell customers the real reasons for their rejections or to discuss it in writing or on recorded lines.

The bank agreed to set aside $1.4 million for victims of the discrimination, but the vast share of the penalty is going into a pool that compensates all consumers harmed by violations of federal consumer financial protection laws.

Now, Smbatian is a lead plaintiff in a proposed class-action lawsuit filed Nov. 17 in Los Angeles federal court on behalf of victims of Citibank’s discriminatory practices. The suit alleges far greater harm than is detailed in the CFPB’s order.

“The fine is actually minuscule compared to the damage done, and it’s very significant from what we are hearing from our clients,” said attorney Tamar Arminak, whose Glendale firm filed the lawsuit. “It really wrecked them.”

Los Angeles County is home to nearly 190,000 people of Armenian descent, according to the 2020 census, making it the largest diaspora community in the country.

The lawsuit seeks to compensate the plaintiffs due to losses suffered from a wide range of alleged injustices, including damage to credit scores and the financial hardship arising from account closures and the inability to access their money. It is also seeking punitive damages due to “the indignity of discrimination.”

Arminak said she had heard from Smbatian, a friend and others in the Armenian community about the closed accounts and decided to proceed with the lawsuit after the CFPB action was announced this month. After advertising the class action on social media and her firm’s website, she said, she was deluged with responses and has signed up more than 100 clients who want to participate.

The attorney said clients have told her that they didn’t just have store accounts closed but checking, savings and business accounts, with the money tied for up weeks or months. Some businesspeople told her their Small Business Administration loan funds were frozen for years. Meanwhile, they had trouble accessing their bank records and couldn’t get a straight answer about what was happening.

“People suffered far more than a Macy’s account not being approved,” she said. “And I don’t think the fine addresses the humiliation involved.”

Despite the consent order focusing on a period through 2021, Arminak said, the stories she has heard from clients indicate account closures actually accelerated last year.

Smbatian’s lawsuit is the second proposed class action arising from the fallout surrounding the CFPB’s order. It follows a narrower lawsuit filed Nov. 13 by a San Mateo, Calif., law firm on behalf of a Grenada Hills woman of Armenian descent who held a Citibank Costco-branded card and alleges she was turned down for a credit line increase this year. A New York law firm announced it is looking into potential breaches of fiduciary duties by the bank’s officers and directors.

Citibank did not respond directly to request for comment regarding the lawsuit but directed The Times toward a statement it previously issued about the CFPB settlement, in which it did not deny or admit the agency’s findings.

“Regrettably, in trying to thwart a well-documented Armenian fraud ring operating in certain parts of California, a few employees took impermissible actions. While we prioritize protecting our bank and our customers from fraud, it is unacceptable to base credit decisions on national origin. We sincerely apologize to any applicant who was evaluated unfairly by the small number of employees who circumvented our fraud detection protocols,” it said.

The alleged Citibank credit denials and account closures follow decades of increasingly tough “know your customer rules” that aim to reduce financial crimes. They were first imposed in 1970 and strengthened after the Sept. 11, 2001, terrorist attacks and the 2008 financial crisis. Bank violators have been subjected to sometimes huge fines totaling in the billions of dollars domestically and abroad.

Lauren Saunders, associate director of the National Consumer Law Center, said that banks have a responsibility to look out for illegal activity such as accounts being used by drug cartels and for money laundering and perpetrating fraud, but that it has gone beyond that.

“What we are seeing right now is that some are overreacting or indiscriminately freezing or closing accounts based on supposed red flags, catching innocent people in the process and without giving them any clear procedure or remedy or timeline to get their money back when they, in fact, are not criminals,” she said.

Among the most high-profile recent example, she said, was that of Bank of America, which froze the debit-card accounts of Californians receiving unemployment benefits at the height of the COVID-19 pandemic using a crude algorithm to detect fraud — and then holding on to the money as customers fruitlessly called for weeks. The bank paid fines totaling $225 million to two federal agencies last year.

Saunders said that regulations need to be strengthened to require banks to provide a reason for shutting accounts and to have a consumer dispute process in place. “I think we need to make sure that banks aren’t closing accounts for discriminatory reasons. And right now, they are not being required to give any reasons, and that can be a cover for discrimination,” she said.

The consent agreement prompted Rep. Maxine Waters (D-Los Angeles) to call for the Office of the Comptroller of the Currency, the bank’s regulator, to revisit an “outstanding” performance rating Citibank received in 2021 for its compliance with the Community Reinvestment Act. The 1977 law encourages banks to take steps to improve access to credit and other banking services in minority communities.

The CFPB would not comment on what prompted it to investigate Citibank, but the consent order states that it discovered the alleged discrimination through a statistical analysis of credit applications in the retail services unit from 2015 to 2021. Citibank must now develop a plan to identify and compensate harmed customers, who will not have to apply for compensation.

Under federal rules governing proposed class actions, any related lawsuits would be combined and a lead counsel appointed. The cases also would have to meet certain criteria to be certified and proceed, a process that could take at least six months to a year. Successful class actions typically result in settlements.

Karl Asatryan, a real estate agent and developer, is the other named plaintiff in the case. The lawsuit alleges he received a letter from bank in May last year stating his accounts would be closed in 30 days. No reason was given, and his line of credit also was shut down.

He said he had been a Citibank client for some 20 years and had even refinanced his home mortgage with the bank.

“That’s disrespect toward the customer,” said Asatryan, 44, of Valley Glen. “And for a customer like myself, that’s ridiculous.”