SAN FRANCISCO (CN) – Citibank agreed Tuesday to repay $14 million taken from 53,000 customer credit accounts, plus interest and penalties, after after a three-year investigation by the California Attorney General’s office revealed the bank’s policy of clearing positive balances off customer credit accounts.
Citibank used a computerized process between 1992 and 2003, which automatically and immediately erased positive balances from credit-card accounts. Attorney General Edmund Brown Jr. said in a press release that an insider at Citibank reported the credit sweeps to an internal audit team in 2001, and the insider was first ignored and then fired.
“The company knowingly stole from its customers, mostly poor people and the recently deceased when it… implemented the sweeps,” said California Attorney General Jerry Brown Jr.
A spokesman for Citibank in New York said the California Attorney General had been unfair in describing the bank’s actions. “The Attorney General’s characterization of our conduct and the parties’ voluntary settlement is not accurate, said Samuel Wang, vice president for public affairs with Citibank. “We of course are committed to treating our customers fairly.”
The investigation took three years to complete because the state investigators had to overcome legal trench warfare from Citibank which resisted subpoenas from the state to third parties who had information about the theft, said a spokesman for the Attorney General.
Positive balances happen when a customer over-pays, or when a customer returns a purchase for credit. A spokesman for the Attorney General’s office, Dana Simas, said the poor and the dead tend to be less financially organized, which accounts for their increased exposure to Citibank’s credit sweeps.
$1.6 million was swiped from Californians alone, said the Attorney General.
Citibank was represented in the matter by Julia Strickland and Julie Nelson with the Stroock law firm.
The settlement calls on Citibank to refund the victims for the amount stolen, along with a 10% interest. It also imposes a $3.5 million fine to be paid to California, and prevents Citibank from re-initiating the credit sweeps.
Once Citibank has complied, an independent auditor will ensure that Citibank has fulfilled its requirements.
The state’s investigation was led by Deputy Attorney General Frederick Acker.