Citibank, the consumer division of financial services multinational Citigroup is refunding $335 million to credit card customers who should have been paying lower annual percentage rates. Fortune reported that under a federal law known as the CARD Act, credit card companies are required to regularly review credit card accounts to determine whether account-holders should receive a rate decrease. However, Citibank admitted on Feb. 23 that it had failed to perform this duty properly for about 10 percent of its cardholders since 2011.
What is the CARD Act?
The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 requires lenders to periodically review accounts whose annual percentage rate (APR) had been raised to see if subsequent good behavior makes them eligible for a rate reduction. From 2011 to 2017, the bank delivered $3 billion in savings through such reviews, about 90 percent of what Citibank customers should have received. “Citi has semi-annually reviewed U.S. credit-card accounts that experienced an interest-rate increase to identify those eligible for a rate reduction,” spokeswoman Liz Fogarty said in a statement, “A periodic internal review identified potential flaws in the methodology used to reevaluate interest rates on some credit-card accounts.”
What does this mean for Citigroup?
This issue is a setback for Chief Executive Officer Mike Corbat, who has tied some of Citibank’s future growth to expanding its credit-card operation. According to the CFPB in 2015, the bank was ordered to pay $700 million to customers and fined $70 million over illegal practices related to its marketing of card add-on products. In the latest case, Citigroup will issue refunds, or in some instances reduce an account balance, for 1.75 million affected accounts. That works out to an average of about $190 an account, including interest owed. More than half of those affected should have gotten bigger rate cuts, while the rest were entitled to a reduction but didn’t get one. Citigroup managed a total of 250 million accounts across its branded and retail-partner cards during the period in question, and currently has about 120 million accounts. The lender discovered the flaws on its own and self-reported it to regulators, according to the filing. It didn’t find any evidence of misconduct. The Consumer Financial Protection Bureau oversees lenders’ compliance with the CARD Act.
What does this mean for consumers?
With an average refund of $190 per account, Citibank will end up paying out about $335 million. The company will also find customers who no longer have an account with the bank and make sure they receive their refund.