Banks, of all companies, are expected to get the math right. But in at least one case, the numbers didn’t add up for hundreds of thousands of customers — and that cost depositors millions of dollars.
Citizens Bank agreed to refund at least $14 million and pay $20.5 million in fines for shortchanging customers who made mistakes on their deposit slips, federal regulators said Wednesday.
The bank engaged in “shoddy practices that deprived consumers of money that was rightfully theirs,” said Richard Cordray, director of the Consumer Financial Protection Bureau.
From January 2008 to September 2012, Citizens Bank investigated and fixed errors only if the discrepancy was more than $50. From October 2012 to November 2013, the bank lowered that threshold to $25.
The failure to fix errors violated the bank’s own promise in account disclosures to verify deposits, Cordray said.
“The bank chose to ignore these discrepancies and harmed many consumers by pocketing the difference,” said Cordray, whose agency was alerted to the problem by a whistle-blower.
The action against Citizens Bank, a subsidiary of Citizens Financial Group Inc., was the first by the bureau related to illegal practices in deposit processing, Cordray said.
The consumer bureau, along with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., ordered the bank to refund customers in full and change its practices. Regulators estimated more than 475,000 accounts were due refunds.
The deposit processing errors don’t appear to be a widespread problem in the banking industry, said Tom Feltner, director of financial services at the Consumer Federation of America. But the enforcement action showed why it’s important to have the bureau watching out for consumers.
“While this may not be a common practice, it clearly was a systemic practice at this financial institution,” he said. “This is an indication there are a wide range of errors, mistakes and abuses of practices that ultimately result in a cumulative harm to thousands of consumers.”
Citizens Bank, which operates in the Northeast and Midwest, said that its practices for dealing with mathematical errors “could have been better.”
A new system for tellers was implemented in the fourth quarter of 2013 that “is now considered among the best in the industry,” the bank said.
The amounts of money under-credited to customer accounts and over-credited to accounts because of discrepancies with deposit slips “were approximately equal,” Citizens Bank said.
“Customers who were over-credited will keep the excess funds applied to their accounts and customers who were under-credited will be reimbursed,” the bank said.
Cordray said any argument that “it all came out in the wash” because some customers benefited while others were harmed was not correct.
“Many customers lost money that rightfully belonged to them,” he said. “Fifty dollars may seem like a small amount to a bank with assets worth billions of dollars, but it is real money to regular people.”
Ensuring the accuracy of deposits and resolving discrepancies in a timely fashion is a basic function of banking, said Comptroller of the Currency Thomas J. Curry.
At least $11 million in refunds are due to consumers and $3 million to business customers, regulators said. Additional refunds are expected when the comptroller's office finishes a review of the bank's practices.
Citizens Bank customers will receive account credits, and former customers will receive checks, regulators said.