Citigroup overcharged millions of their credit card customers between 2011 and 2017. They plan to send letters of explanation and refund checks to people affected by their failure to lower interest rates as mandated by the Credit Card Accountability Responsibility and Disclosure Act enacted in 2009.
Citigroup found a flaw in their methodology that prevented some customers from receiving a lower interest rate following the six-month penalty period. Routine internal reviews revealed a mistake in their systems that cost customers too much in the form of interest charges.
Because many cardholders don’t review the account terms carefully, they may not be aware that Citigroup overcharged them. Citi routinely evaluates accounts and reduces penalty rates, as mandated by the CARD Act, after six months of on-time payments.
The CARD Act put 12 important consumer protections in place. Among them is a rule requiring card issuers to re-assess rates six months after imposing a penalty APR rate for credit card holders who miss payments and bounce checks. If the cardholder has re-established a good payment history within six months after the penalty interest rate takes effect, the card issuer must reevaluate the account and the cardholder’s financial situation to see if they qualify for a lower interest rate.
Before the CARD Act, credit card companies could impose a permanent penalty APR on an account if the payment was returned or if the cardholder missed a payment.
Citigroup found a flaw in their methodology that prevented some customers from receiving a lower interest rate following the six-month penalty period. Routine internal reviews revealed a mistake in their systems that cost customers too much in the form of interest charges.
The bank admitted the mistake to their shareholders and reported the incident to the Securities and Exchange Commission in its annual report, filed February 23, 2018.
This move may prevent the company from having to pay sizeable fines. They have 55 records on file for violations of various banking and securities laws and have paid a total of $16,753,719,094 since 2000 in fines. Nine of the violations occurred in 2017. Citigroup paid fines for consumer protection violations, banking violations, data submission deficiencies, anti-money-laundering deficiencies, and investor protection violations.
Because many cardholders don’t review the account terms carefully, they may not be aware that Citigroup overcharged them. Citi reduces penalty rates, as mandated by the CARD Act, after six months of on-time payments.
The company says that 90% of their customers experienced properly lowered rates, in compliance with the law. They’ve fixed the problem with their internal processes and expect to completely resolve the situation by issuing refund checks to customers affected by the mistake.
The average refund amount is $190, including interest. Citigroup says they will issue refund checks to the credit card customers responsible for the 1.75 million accounts affected by the error. They plan to spend $335 million to fix the mistake.
