One of the largest credit-card issuers in the worlds, Citigroup, revealed that US customers with an annual percentage rate that should have been lower are expected to be refunded over $335 million.
According to Fortune, the bank determined that one of the methods they were using to calculate APRs didn’t properly reflect the full benefit customers with good behavior should have received. Specifically, we’re talking about paying on time and many other “aspects” which put their account on a good stand.
Give the bank a few months to get things back on track
Citigroup made this announcement on Friday, through a securities filing that disclosed the issue, as well as the total costs. Currently, they’re looking over all the accounts which qualify for a refund and planning to solve the problem by the third quarter of 2018.
These measures come as a result of applying the Credit Card Accountability Responsibility and Disclosure (CARD) Act, issued in 2009. This requires lenders – mostly banks – to periodically review accounts with an APR that has been raised, in order to check if users’ subsequent good behavior makes them eligible for a lower rate.
Since 2011 to 2017, Citigroup offered $3 billion in savings, after making such reviews, which is about 90 percent of what customers should have actually 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,” according to an official statement issued by spokeswoman Liz Fogarty. “A periodic internal review identified potential flaws in the methodology used to reevaluate interest rates on some credit-card accounts.”
A hit for the bank’s growth strategy
However, even though this comes as great news for Citigroup clients, it’s actually a setback for CEO Mike Corbat, who has tied a part of the bank’s future growth to expanding the credit-card operation. For example, back in 2015, the bank was actually ordered to pay over $700 million to customers, but also fined $70 million, after using illegal practices regarding its marketing of card add-on products.
Now, 1.75 million accounts are expecting to receive refunds. We’re talking about an average of $190 per account, including interest.