Citi to Pay $18 million in California Settlement Over Credit Card Practice

The office of California Attorney General Jerry Brown said Tuesday that Citibank agreed to pay penalties of $3.5 million to California residents in a settlement involving the bank’s “account sweeping” practice it employed from 1992 to 2003 on certain credit card accounts.

Under the settlement, Citi could wind up paying back more than $14 million to consumers, bringing the total payout to $18 million.

Brown’s office said that Citi took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit card customer accounts into Citibank’s general fund.

Between 1992 and 2003, Citibank employed a computerized “credit sweep” process to automatically remove positive or credit balances from credit-card customer accounts, according to the AG’s statement. An account could show a credit balance if a customer double-paid a bill or returned a purchase for credit. The credit sweeps were done without notifying the customer and without regard for whether the customer had any unpaid balances or other charges owed to Citibank.

All of the accounts in question had been charged off and were at some stage in the recovery or collection process.

“The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps,” Attorney General Brown said. “When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.”

But Citi said late Tuesday that it took issue with the way Brown characterized the activity. The company said in a statement that the sweeps were due to a technical error and that it had stopped the practice voluntarily in 2003. Citi also said that it had been voluntarily refunding affected consumers since then.

"This agreement affirms our actions, and we are continuing to make full refunds to all affected customers," Citigroup said in the statement.