Citizen Faction Overview - by Slyde
Citizen Faction is new with the Game Update #5. This update also included new mounts for each race. Armor, unique to each continent, was added a few patches later.
As of right now you should not be KOS in any city, regardless of your character's race. Once you start working on your Citizen Faction for a city, that will change.
When you hit level 10, you should receive in-game mail that includes a gift (a ring) and instructions to return to your home city and see the City Registrar. Your Quest Journal Locations will be updated with all City Registrars, but the journal just lists their names, not their title, so they may not be easy to find.
Should you decide to acquire one of the new mounts, or the armor, you must visit the City Registrar in the city of your choice. Provided you are at least level 10, he/she will give you a necklace that is equipped as part of your Diplomacy clothing.
(NOTE: You may start off with negative faction in some cities, as much as -4,000)
While wearing this necklace, when you kill any mob that gives experience there is a chance it will drop a special coin for your city (Gold Coin of Khal for example).
You can then turn these coins in for faction in your chosen city. But, be aware that this will lower your faction in other cities (see the City Faction Chart for details). Note that both your City Faction and Citizen faction is affected. You can restore your City faction to non-KOS levels by killing certain mobs, but restoring Citizen faction may be more difficult, or even impossible. That's because you can only raise Citizen Faction by carrying the banner for a city, but you need a certain amount of faction to begin with before the NPC will give you the banner. So, if your faction gets too bad with the Citizens of a city, you may not be able to obtain the banner needed to fix it.
You will also need Platinum coins which only drop off named NPCs with names in CAPITAL LETTERS.
The faction coins are worth:
Armor Prices: (as reported by Dragonmonk)