Citibank Inc. will pay refunds and damages totaling $18 million to settle charges that the financial services company emptied the dormant accounts of credit card customers, California's attorney general announced Tuesday.
A three-year investigation concluded that Citibank used an "account sweeping" program between 1992 and 2003 that quietly shifted accrued money in the accounts of 53,000 cardholders to a company-controlled fund. Citibank's customers, who may have run a positive balance by returning a purchase for credit or accidentally making two payments, weren't told about the sweeps, the attorney general's office said.
Under terms of the settlement, Citibank agreed to return $14 million to customers -- including Californians, who will receive a combined $1.6 million plus 10 percent interest. Citibank will also pay the state $3.5 million in damages and civil penalties.
"The company knowingly stole from its customers, mostly poor people and the recently deceased," Attorney General Jerry Brown said in a prepared statement.
A Citibank spokesman called Brown's characterization of the company's actions "not accurate," but declined to give specifics. "We of course are committed to treating our customers fairly, and we voluntarily ended the computer process at issue on our own in 2003," Samuel Wang said in an e-mail.
A Citibank employee, Albert Mellon, discovered the account sweeps in 2001 and, after questioning the practice with his superiors and company auditors, was later fired, according to the attorney general's office. In 2005, Mellon brought a whistleblower complaint against New York City-based Citibank to the state Department of Justice. The settlement requires Citibank to pay Mellon $300,000.
"Citibank had pretty much blackballed [Mellon] from the industry," said Brown spokeswoman Dana Simas. "When he came to our office, he was waiting tables."
In documents filed with the Sacramento County Superior Court in 2006, another Citibank employee -- which a judge deemed credible -- said in a declaration that a department head ordered him not to tell company attorneys about the account sweeps because, "Stealing from our customers is a business decision, not a legal decision."
Deputy Attorneys General Frederick Acker and Nicklas Akers pursued Citibank for possible violations under the powerful California False Claims Act for three years. Akers did not return a phone message Tuesday. Acker declined to comment on the case, referring all questions to the attorney general's press office.
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Citibank to Pay $18 Million to Settle Calif. AG's Claims of Theft From Customers
The Recorder
August 27, 2008
