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Some Citigroup credit card customers will receive refund checks thanks to a miscalculation of annual percentage rates (APRs).
The bank disclosed in a Securities and Exchange Commission filing that it discovered its method utilized to calculate APRs was too high for accounts with good behavior, including those with on-time payments. As a result, accounts had been overcharged, according to a Bloomberg report. This error, from what the bank cited as “methodological issues,” affected 1.75 million credit card accounts from 2011 to 2017.
During this period, some accounts received smaller APR reductions than what had been owed, while others failed to receive anything. Impacted accounts included those with co-branded cards, regular credit cards, and cards used at specific stores.
After a review, Citibank is expected to refund a total of $355 million, with an average of $190 (including interest) going to each affected account. Some impacted accounts might get the balances reduced, while some former accountholders may receive a check.
Citibank announced on its website that it will contact cardholders who are due a refund; customers don’t need to do anything. Refunds are expected to come later this year.
Regular Reviews Are Required
So how did Citigroup discover this miscalculation? Consumers can thank the Credit Card Accountability Responsibility and Disclosure (CARD) Act. This federal law requires credit card issuers to periodically review accounts with raised APRs and determine if the account shows good credit behavior. For eligible accounts, a rate reduction must be implemented from the cardholder’s improved financial standing.
“Citi has semiannually reviewed U.S. credit card accounts that experienced an interest rate increase to identify those eligible for a rate reduction,” said Citigroup spokesperson Liz Fogarty in a statement. “A periodic internal review identified potential flaws in the methodology used to reevaluate interest rates on some credit card accounts.”
For Citigroup, this is not its first large payout. In 2015, it paid $700 million to customers and a $70 million fine for illegal practices from the marketing of its add-on products cards. But in this case, according to Matt Schultz, senior industry analyst at CreditCards.com, the admission of a mistake this large is a rare one.
“Two hundred dollars is a significant amount of money for an awful lot of people in this country. For this to have happened for almost two million accounts is a significant thing,” he told The New York Times.
Keep an Eye on APRs
While consumers do have more protections against card issuers due to the CARD Act, it remains important to pay credit cards on time to help avoid rising APRs. If you have a history of good behavior with that account, then being proactive about asking for a lower APR can be a good option.
Similar to calling the cable company to ask for a lower bill, consumers can contact their credit card companies and try to negotiate for a lower APR. Consider calling your credit card issuer, explain that you’ve been a good customer, and then ask the issuer if they can reduce your rate.
Author: Mike Brown
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