SAN FRANCISCO (CN) - A federal judge gave preliminary approval to a settlement for home owners who said that Citibank reduced their credit by using an automated valuation program.
Citibank faced a slew of claims over its automated valuation models in 2009. In one complaint, lead plaintiff David Levin claimed that his home value did not actually decrease enough for Citibank to reduce his credit limit. He alleged violations of the Truth-in-Lending Act and breach of contract.
Levin is one of six plaintiffs named as a class representative in the Tuesday order granting preliminary settlement approval.
The complaints said Citibank used the same program to overvalue homes so that it could justify bigger loans and fees during the real estate boom.
Citibank allegedly used "automated valuation models" to track home values in general geographical areas. Customers said that the bank sent thousands of form letters to mortgage-holders who live in regions with declining home values, informing them it is reducing their home equity credit limit.
Though Citibank received more than $300 billion in government aid as part of the Troubled Asset Relief Program, consumers said they were told that they could only restore their credit limit by independently paying for a new appraisal.
Levin said he got a new line of credit from a different company, but that Citibank charged him an early termination fee when he closed his line of credit with them.
U.S. District Judge Maxine Chesney certified a settlement class consisting of "all persons in the United States from January 1, 2008 to January 31, 2012 whose Citibank HELOC accounts were suspended or reduced based on a claim by Citibank of collateral deterioration regarding the value of the property securing the HELOC."
HELOC is an abbreviation for Home Equity Line of Credit.
The settlement gives implicated borrowers a chance to reinstate their accounts. Citibank also plans to give up to $10 to each borrower who closed a HELOC account after receiving the suspension or reduction notice, incurring an early closure fee.
Chesney appointed as class counsel: Jay Edelson, Steven Woodrow and Evan Meyers of Edelson McGuire LLC and Jim Patterson of Patterson Law Group.
She will hold a final approval hearing on March 15, 2013.
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