Citigroup Settles Insurance Lawsuit, Shares Up

Zacks

Amidst the ongoing investigations and litigation issues in the banking sector by various regulators, Citigroup Inc. (C) has emerged with another settlement. With this move, Citigroup’s shares rallied 2.26% higher on Friday, coming in at $49.34.

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 insurances.

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.

Last year, JPMorgan Chase & Co. (JPM) and Assurant Inc. (AIZ) 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 BB&T Corporation (BBT) with a Zacks Rank #2 (Buy).

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