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Citigroup Settles HELOC Lawsuit

gavel with books and glasses
Citigroup settled with borrowers whose Home Equity Lines of Credit, more commonly referred to as HELOCs, were suspended or cut due to alleged decreases in property values, according to settlement papers filed on Aug 31.

A HELOC is a loan in which borrowers use their home as a line of credit. Borrowers are then able to take money out of that line of credit.

The incident began in January of 2009. A lawsuit was filed claiming that in 2008 Citigroup began to send HELOC suspension or reduction notifications to borrowers whose homes had lost a significant amount of value.

The lawsuit states that the homes had not lost a significant amount of value and that Citigroup was operating a “thinly-veiled, unlawful attempt to limit its exposure to the risk of collapse in the United States housing market and to rid itself of below-market interest rate loans.”

As part of the settlement, Citigroup will reform some of its home equity lending practices. The bank has also agreed to let borrowers who lost access to their HELOCs recover some fees. Borrowers will also have a chance to reinstate their accounts.

Citigroup said it will give each borrower who closed a HELOC following a suspension or reduction a chance for a $120 payment. The bank also agreed to expand disclosures in notices sent to borrowers.

“Citi is pleased to have this matter resolved,” said Mark Rodgers, spokesman for Citigroup.

While Citibank is undoubtedly pleased that this matter will not go to court, the bank did not admit wrongdoing in the settlement.

The law firm representing the former HELOC borrowers, Edelson McGuire, plans to seek as much as $1.21 million to cover legal fees and expenses.

This current Citigroup settlement is but the latest of several concerning incidents of banking practices related to housing, credit and financial crises over the last few years. On Aug 29, Citigroup announced a $590 million settlement of a shareholder lawsuit that claimed Citigroup had hid several billion dollars worth of toxic mortgage loan assets.

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