C Citigroup Inc

By AnnaMaria Andriotis 

Citigroup Inc., one of the largest U.S. credit-card issuers, said Friday that it failed to lower interest rates for some credit-card customers as required by federal law.

The bank said it plans to issue around $335 million in refunds to affected customers, or about $190 on average per affected account.

Citi said the issue stemmed from the bank increasing annual percentage rates on cards after customers missed payments as well as other reasons. The Credit Card Accountability Responsibility and Disclosure Act requires card issuers who increase rates to review those accounts every six months.

Issuers are then supposed to reduce the rate if the reason for the increase is no longer a problem. That could include, for example, a cardholder establishing a pattern of again paying their bill on time.

Citi said the issue affected around 1.75 million U.S. credit-card accounts over a period ranging from 2011 to 2017. Some of those accounts received smaller rate reductions than they should have, while others didn't receive any reduction, the bank said. They included the bank's regular credit cards, and co-branded cards that it has with merchants, and credit cards that can only be used at specific stores.

The bank said it delivered around 90% of the savings to customers as required by the interest-rate reduction requirement, resulting in more than $3 billion in savings.

The bank currently has around 120 million U.S. credit-card accounts and had a total of about 250 million U.S. credit-card accounts during the period in which the problems occurred. Citi is the third-largest U.S. credit-card issuer by total volume and by outstanding balances, according to the Nilson Report.

The bank, which disclosed the issue in its annual securities filing made Friday, said a periodic internal review identified the flaws in its methodology. Citi reported the issue to its regulators, including the Consumer Financial Protection Bureau.

"While we believed our methodology was sound, a periodic internal review identified potential flaws in the methodology," a Citi spokeswoman said in a statement. "We informed our regulators, revised our methodology going forward and conducted a comprehensive review of our process." She added that the bank found no evidence of employee misconduct but that it "should have identified these issues sooner."

Citi hasn't yet identified all the consumers affected and said they include current and former cardholders.

Citi's credit card division has generated over $100 billion in revenue from 2011 to 2017. The bank stands out from many of its competitors by offering long promotional zero percent interest rates on its cards to entice consumers to sign up for them. It also sends out many balance transfer offers with zero-percent promotional rates to entice existing customers to transfer credit card balances they have with other issuers.

--Christina Rexrode contributed to this article.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

February 23, 2018 12:33 ET (17:33 GMT)

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