Amidst the ongoing investigations and litigation issues in the
banking sector by various regulators,
) has emerged with another settlement. With this move,
Citigroup's shares rallied 2.26% higher on Friday, coming in at
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Citigroup has decided to settle a lawsuit that accused the
company of overcharging thousands of homeowners for force-placed
insurances. The bank will pay an aggregate of $110 million to
settle the class-action lawsuit in New York. Force-placed
insurance is generally ordered for those homeowners who refuse to
buy insurance themselves.
Though the mortgage agreement gives lenders the right to
force-placed insurance, the plaintiffs accused Citigroup of
providing high premium insurance coverage to homeowners to earn
additional commission. Collectively, the plaintiffs were charged
approximately $758 million in hazard insurance premiums and $173
million in flood insurance premiums.
As per the settlement terms, Citigroup will pay 12.5% cash
reimbursements to those class members who paid premiums on the
force-placed hazard insurance. Further, the plaintiffs who paid
force-placed flood insurance premiums and force-placed wind
insurance premiums will receive 8% repayment each, even though
Citigroup or its associates received no commissions on such
Additionally, the agreement, which still requires the consent of
court, ordered Citigroup to stop the collection of commissions
related to force-placed insurance policies over a period of six
years from the date of the settlement.
JPMorgan Chase & Co.
) also agreed to similar settlements with the agreement to pay an
aggregate of $300 million. The class-action lawsuit was filed in
Jun 2012 on behalf of homeowners who were compelled to take
insurance policies as of Jun 2008.
Regulatory authorities are working hard to put forward a landmark
judgment to terminate such shrewd practices in future, bring
justice to the sufferers and punish the wrongdoers. While
settlement of such issues will bring reprieve to the banks, this
comes as a huge blow to their financials.
Currently, Citigroup carries a Zacks Rank #5 (Strong Sell). A
better-ranked regional bank worth considering includes
) with a Zacks Rank #2 (Buy).