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Citigroup Inc. has agreed to pay nearly $18 million in cardholder refunds and civil penalties to the state of California for removing positive balances from credit cards, the California attorney general announced yesterday. The settlement follows a three-year investigation into Citi's practice, between 1992 and 2003, of automatically removing positive balances from some accounts when cardholders overpaid their card bills or received credits for returned merchandise, California Attorney General Edmund Brown Jr. said in a statement. The automated process, which Brown called a "credit sweep," erased the positive balances without notifying cardholders or applying the extra funds to unpaid balances or new charges. All of the accounts were in recovery status because cardholders had died, filed for bankruptcy protection, or had been subject to lawsuits or Citi collections efforts. The issuer moved $14 million from more than 53,000 credit card accounts nationwide into the bank's general fund. Of that nationwide total, $1.6 million came from balances on the card accounts of California residents. Because Citi will pay 10% interest to affected California cardholders under the settlement, Citi refunds and interest paid to California residents will reach $3.5 million. Citi will pay an additional $3.5 million in civil penalties and damages to the state under the settlement. In July 2001, a Citi employee discovered the practice and was fired after discussing it with an internal-audit team, the attorney general's statement says. Citi spokesperson Samuel Wang tells CardLine that Citi denies the event took place. The attorney general also alleges that a Citi executive said of the practice "stealing from our customers is a business decision, not a legal decision" and that credit sweeps helped fund executive bonuses. Wang says Citi denies the statements Brown attributed to the Citi executive. Brown also says Citi "knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps." Citi issued a statement to journalists calling Brown's characterization of Citi's conduct inaccurate. "We, of course, are committed to treating our customers fairly, and we voluntarily ended the computer process at issue on our own in 2003," Citi says in the statement. "We have been refunding credit balances voluntarily to customers nationwide." After Citi distributes the refunds, an independent auditor will review Citi's efforts to ensure compliance with the settlement.
