On Friday, as part of a settlement reached with regulators, Citigroup C agreed to refund $335 million to its credit card customers holding 1.75 million customer accounts, after having confessed to charging higher interest rates to some of the defaulters, since 2011. Notably, the banking giant was not charged additional fine by the Consumer Financial Protection Bureau (CFPB), as the bank itself identified the issue and reported to CFPB in 2017.
Per Citigroup, the refunds averaged around $190 and the refund process will likely be completed by the end of this year. “Citi is pleased to have resolved the matter with the Bureau, and we reiterate our sincere apologies to our customers for not correcting these issues sooner,” the bank noted.
Per the Credit Card Accountability Responsibility and Disclosure Act of 2009, credit card issuing companies are required to review accounts of customers whose interest rates had risen after a missed payment or bounced checks. The companies are to determine whether the customer has resumed making timely payments or has displayed some other creditworthy behavior. On being satisfied of the customer’s financial standing, the rates are supposed to be lowered.
In one such review, it was revealed that Citigroup had kept overcharging about 1.75 million accounts. A number of flaws were discovered in the methodology which was used to calculate the reduced rates in some accounts.
Further, majority of the affected accounts witnessed smaller rate cuts than they were eligible to, while the rest did not get the reduction at all. Also, the bank had reported to have found no wrongdoings on part of its employees.
Previously in 2015, financial regulators had made Citigroup pay nearly $700 million to credit card customers who were made to buy unnecessary add-on services.
Banks across the globe have been facing increasing scrutiny for their business practices. Many of these firms have paid billions of dollars as fines and compensation to settle lawsuits and probes. Many investors have lost their hard-earned money as a result of such business malpractices. Encouragingly, such settlements help restore investors’ confidence in banks and their operations.
Author: Zacks Equity Research